Game analysis between startup and banks

Abstract

Objective - Due to information asymmetry, banks cannot know all the information about a company during the financing process. Compared to large firms, start-ups face more difficulties in obtaining debt financing. In order to investigate how the game between start-ups and banks maximizes the benefits of debt financing, this study is based on the game process between start-ups and banks in complete and incomplete information markets. Methodology/Technique – The model assumes deterministic and relatively simple financial decisions, and game theory provides a way to gain insight into the mechanistic phenomenon of debt financing for start-ups by allowing for the inclusion of asymmetric information and strategic interactions in the analysis. Finding – The game process of debt financing for start-ups is studied from a game theoretical perspective to reveal the optimal decisions of both parties in the game process under the influence of information asymmetries, i.e., the basic laws governing the operation of debt financing for start-ups and the important criteria and procedures to ensure that debt financing works correctly. Novelty – The study shows that high-quality start-ups are more likely to receive bank loans than low-quality firms that are willing to pay high-interest rates. Type of Paper: Empirical JEL Classification: C7, C72. Keywords: Asymmetric Information theory; Game Theory; Debt Financing; Startup. Reference to this paper should be referred to as follows: Chengzhuo, Z; Azman, N.H.B.N. (2023). Game analysis between startup and banks, GATR-Global J. Bus. Soc. Sci. Review, 11(1), 01–08. https://doi.org/10.35609/gjbssr.2023.11.1(1)