Game Analysis of SME Financing

Pingzhong Lin

doi:10.4236/jfrm.2012.14011

Abstract

The SMEs (small and medium-sized enterprises) play important role in the economy. However, the financing problem is a big difficulty, which has plagued the SMEs’ development. Information asymmetry is the main reason for the SMEs’ gaining funds so hard. The information asymmetry between banks and enterprises is that banks do not know the operating conditions and credit situation of SMEs. Then, to some extent, the banks are reluctant to support credit for businesses under the circumstance of lacking appropriate information, resulting in a “credit crunch” behavior. Therefore, the main measures of solving SMEs’ financing difficulty are to overcome the information asymmetry in the process of SME financing by establishing effective information mechanisms, the credibility and restraint mechanisms, strengthening the construction of credit rating agencies, and promoting the mutual exchange of information.

Highlights

In financing activities, information asymmetry between SMEs and investors is widespread
The investors are often difficult to fully grasp the future profitability of SMEs, which means that they have incomplete information (Gao, 2011)
SMEs are divided into two types: enterprises with good economic efficiency and ones with poor economic efficiency

Summary

Introduction

Information asymmetry between SMEs and investors is widespread. SMEs own relatively complete information about their future profitability. The investors are often difficult to fully grasp the future profitability of SMEs, which means that they have incomplete information (Gao, 2011). This paper analyzes SMEs’ financing problem from two perspectives: dynamic game of complete information and dynamic game of incomplete information. On the basis of the above analysis, it tries to identify the main reasons and viable solutions to change the status quo in SME financing

A Dynamic Game of Complete Information

A Dynamic Game of Incomplete Information

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