The Social Economic and Environmental Impacts of Trade Liberalization.doc

credit rationing in medium-small enterprises credit market under asymmetric informationcredit rationing in medium-small enterprises credit market under asymmetric informationjinke wu * jinke wu(1974-), male, ph.d. candidate of school of management of tianjin university, tianjin, china, postcode: 300072; tel: 27718955, e-mail: . qingmei tan* qingmei tan(1975-), female, ph.d. candidate of school of management of tianjin university, tianjin, china, postcode: 300072.abstract: credit rationing has been an objective phenomenon in medium-small enterprises credit market of china. by analyzing the present situation of medium-small enterprises credit market of china, this study gives a new credit rationing model fitting medium-small enterprises credit market of china well. it has been showed in the empirical study that different factor has each different influence on medium-small enterprises credit market; further more, only the change of chastisement factor can make the medium-small enterprises credit market achieve whole success, but other factors can merely get integrant success even though under the most ideal condition.key words: medium-small enterprises credit market credit rationing asymmetric informationin the medium-small enterprises credit market of china, there is a special phenomenon that some medium-small enterprises can get the loans they need, but others cannot even though they are ready to pay more interests. this is the credit rationing in medium-small enterprises credit market of china.credit rationing is a twisted but objective phenomenon in medium-small enterprises credit market of china 1. vickers, j. holds that there are two cases about credit rationing in credit market, in the first case all the debtors cannot borrow the funds they need, and in the second case, when the same kinds of enterprises apply for the funds to the banks, some can get the funds but others cannot.in medium-small enterprises credit market of china as mentioned above, only a part of medium-small enterprises can get the funds they need. according to the inquisitional result of chinese academy of social sciences, although the employment positions offered by medium-small enterprises have already exceeded ninety-five percent of the whole employment positions in china, the loans they get only occupy thirty percent of all our bank credit. so the conclusion can be reached that credit rationing has been a typical phenomenon in medium-small enterprises credit market of china.stiglitz, j. and a. weiss provided a rationale for the existence of credit rationing by arguing that adverse selection and moral hazard can lead a decrease of the expected return to lenders if the lending rate increasing 2. greenwald and stiglitz, j. presented a model fitting credit rationing ideally, in which they pointed out that lenders are inclined to increase lending rates and adopt credit rationing because they are less well informed than borrowers about the risk characteristics of the borrowers investment projects 3. according to this model, credit rationing can be considered a long and balanced phenomenon in credit market. and the limitation of this model is also very obvious, for only the relation between credit rationing and lending rate has been discussed, but the influence of other factors has not been considered.by analyzing the present situation of medium-small enterprises credit market of china and thinking over other facts, such as system factor, chastisement factor and encouragement factor, this paper gives a new credit rationing model fitting the medium-small enterprises credit market of china much more. 1. theoretical model 1.1 basic hypothesis(1) participators: a series of medium-small enterprises and banks;(2) the prospect of every invest project of medium-small enterprises has two possibilities, success or failure. if the invest project succeeds, the medium-small enterprise will get the return r (r0); contrarily, if the invest project fails, the medium-small enterprise will only get the return c (c concludes not only the direct losing of the failure, but also the chastisement losing, such as, the fine paying the bank since the medium-small enterprise cannot repay the loan on time, the losing of honor, etc.);(3) this paper assumes that all the invest projects of medium-small enterprises have the same average return t, the bank knows the numerical value of t, but does not know the successful probability of the invest project. supposing p(r) is the successful probability of the invest project, the equation p(r) r = t can be got, which shows that the higher r is, the lower p(r) is;(4) supposing the numerical value of the funds that every invest project needs is 1 unit, the numerical value of the funds that medium-small enterprise possesses is k and bank is the only funds supplier, so every medium-small enterprise needs to borrow 1-k funds from bank; supposing the lending rate is r, if the medium-small enterprise repays the funds punctually, it will get some encouragement s from the bank;(5) if the medium-small enterprise get the funds, then the invest project will go along well. the profit the medium-small enterprise gains is r-(1-k)(1+r) when the invest project succeeds, contrarily, the profit the medium-small enterprise gains is c when the invest project fails;(6) supposing every medium-small enterprise can get some governmental allowance v (v is called system return variable) if it gets the loan, so a conclusion can be drawn that medium-small enterprises determinately can get some return v in spite of the prospect of the invest project.1.2 theoretical model according to the basic hypothesis, the expected return function can be got:if the medium-small enterprise does not invest, the expected return y will be 0. so there is a critical return r*, and only when rr* the medium-small enterprise would apply for the loan. otherwise, since p(r) r = t, there is a critical successful probability p*, which makes the medium-small enterprise apply for the loan just . according to the expected return function and the function p(r) r = t, r* and p* can be got:as there is asymmetric information between the medium-small enterprises and banks about the quality of medium-small enterprises, expected return of the invest project, etc. supposing the probability distribution of p is f(p) in 0, 1, and the cumulation distribution function is f(p), then the average successful probability of all the loan applicants can be gotand then the followed deduction can be got (1)= (2) (3) (4)2. model analysis 2.1 lending rate analysis from the analysis above, adverse selection is more complicated if more factors are considered in medium-small enterprises credit market of china. according to lending rate factor, since , the sign of lies on the sign of , namely, lies on the sign of t-c+v.according to the function (1), when , then . this means, when the total of the loan average return t and system return v is less than the losing if medium-small enterprise fails c, the average successful probability will increase along with the increase of lending rate, which means the adverse selection venture will decrease.when , then . as soon as the total of the average return t and system return v is more than the losing if medium-small enterprise fails c, the average successful probability will decrease along with the increase of lending rate, which means the adverse selection venture will increase.from the analysis above, a conclusion can be drawn that higher lending rate does not mean lager adverse selection venture yet. as the same as the “market for lemons”, the invest projects with higher venture will drive out the invest projects with lower venture from the medium-small enterprises credit market, and this typical adverse selection will appear under special condition. in this study a different result from stiglitz, j. and a. weiss has been got, for the phenomenon that the higher lending rate along with the lower adverse venture will not appear if more factors are considered and under the condition that t+v0, then , that is to say, along with the increase of failure losing c, the average successful probability will increase and the adverse selection venture will decrease. on the contrary , if 0, then , which means that along with the decrease of failure losing c, the average successful probability will decrease and the adverse selection venture will increase. the influence of the lending rate increase on the expected return of the bank is not simply monotonous, because the expected return of the bank not only lies on the lending rate, but also the repaying probability of all the medium-small enterprises. now supposing that the bank can satisfy the applications of all applicants, then the expected return of the bank can be gained as while as the bank loans 1-k unit funds. (5)where (1+r)(1-k) is the return of the bank if applicants do not fell back.according to the function (5), the following deduction can be got. (6)according to the function (1) and (6), if , then , there is more than one which can make the numerical value reach the max. so the bank can increase its return even though it does not increase the lending rate, which can explain that sometimes the banks would rather adopt the credit rationing than increase the lending rate. on the other hand, if , , can not reach the max. figure 1 shows the influence of on .then the following deduction can be got. (7)according to the function (2) and (7), if , then ; contrarily, when , . (8)according to the function (3) and (8), if , then ; contrarily, when, . (9)according to the function (4) and (9), if , then ; contrarily, when , . rat +vcrbfigure 1 influence of on according to the analysis above, the influence of every variable on credit rationing is not simple plus correlation or minus correlation under the restriction of multi-variables, which means that the credit rationing in the medium-small enterprises credit market of china is very complicated if more factors are taken into account comprehe