SMEs and the reduction of information asymmetries: the contribution of signal theory

Abstract

SMEs are recognized as the most important business category in our economic fabric. These companies commonly experience difficulties in accessing formal financing. Indeed, they are considered to be characterised by a strong asymmetry of information affecting their relationship with their main provider of external resources, the banks. The objective of this article is to analyse the mechanisms of resolution of information asymmetries from the point of view of signal theory. In fact, it is a question of assessing the signalling efforts of SMEs through the following variables: personal contribution of the owner, debt, guarantees, dividends paid, duration of the customer relationship, the profile of the entrepreneur, share capital, and distance. Based on questionnaire survey data from 217 Malian SMEs and the use of a binary logistics model, our results show that five (5) signals are significant in the treatment of information asymmetries by Malian SMEs. These are the personal contribution of the entrepreneur, the dividends paid, the duration of the customer relationship, the entrepreneur’s profile, and the share capital. These results suggest a reduction in the degree of informational opacity of SMEs towards banks in the presence of these signals.

Keywords: Information asymmetries, Signals, SMEs, Banking, Mali.

JEL Classification: G32, G35

Paper type: empirical article