Studies On Credit Risk Evaluation Of Small New Venture’ Indirect Financing

From a global perspective，it is a common phenomenon of the existence of a largenumber of new small ventures，regardless of countries, regions and stage of development. But,new small ventures have，for a long term，been facing with the difficulty of micro-financingwhile they are creating significant macro social and economic benefits. This is mainlyreflected in: on one hand，new small ventures have played an important role in promotingeconomic development，increasing employment，creating innovation，maintaining marketcompetitive vigor，and protecting price mechanism，etc; on the other hand, as the micro mainbody，new small ventures have constantly fallen into the plight of survival and developmentdue to difficulties in financing.Three reasons result in the financing difficulty of new small ventures. First, the inherentdeficiencies of new small ventures，such as: smaller scale of assets in the early days; greatuncertainty of future development; lack of credit，high risk，etc; second，for a long term, creditrisk evaluation models of commercial banks in China have mainly been focused on large andmedium enterprises，resulting in its failure to build effective credit risk evaluation models fornew small ventures，and to make scientific and objective evaluation of credit risk and creditdecision for new small ventures; third, lack of theoretical research. This is mainly reflected in:The academic community, when building credit risk evaluation models, tends to focus onlarge ventures and ignore small ventures; focus on financial indicators and ignorenon-financial indicators, focus on tangible assets and ignore intangible assets, focus on theinformation in financial statements and ignore the information out of financial statements,focus on the normative of information disclosure and ignore cooperative enterprises,transaction process and financing products’function in mitigating information asymmetry.These perspective limitations on the theoretical research not only restrict the innovations andpractices of financial bodies in finance services to new small ventures, but also result in asituation that theoretical research of credit risk measurement, evaluation and management fornew small ventures lags far behind practice needs.Therefore，it is undoubtedly of great practical and theoretical significance to solving thefinancing difficulties of new small ventures through a correct understanding of the operationcharacteristics of and financing rules new small ventures，and a scientific command of riskcharacteristics，so as to further effectively identify the credit risk situation and key influence factors in various stages in their growth process，build a scientific and rational credit riskevaluation model for small new venture，and to guide and optimize banks’financing policies,credit ideas and product design for new small ventures, and to enrich the theory of credit riskmanagement.This paper takes small new venture as study sample，aiming at revealing key influencefactors of credit risk and building evaluation models for new small ventures，and on the basisof concerning financial factors, mainly introduces factors such as cooperate characteristics,shareholders characteristics and contract characteristics into the analysis framework of creditrisk factors, and uses a variety of representative evaluation methods to build theoreticalevaluation models under multi-classification modes and makes relevant empirical analysis.The study of this paper concludes as follows:A. On credit risk influence factors of new small venturesThere is a close relationship between new small ventures’credit risk and its financialcharacteristics，corporate characteristics，characteristics of shareholders and characteristics ofcontract.Ⅰ. On financial characteristics. Corporate profitability, solvency and viability havesignificant impact to its credit risk, while its development capacity is not obvious. Return ontotal assets is the most significant factor in releasing credit risk.Ⅱ. On corporate characteristics，Characteristic variables have significant impact to creditrisk. Credit risk of ventures located in economically developed regions is significantly lowerthan those located in economically less developed or non-developed regions. Net assets andregistered capital，to a certain extent，can reduce credit risk of the venture.Ⅲ. On characteristics of shareholders. Shareholders’Characteristic variables havesignificant impact to credit risk. The longer the experience of shareholders，the moresignificantly can the credit risk be reduced. As the associated guarantee, shareholdersguarantee’s function in reducing credit risk is not obvious.Ⅳ. On security characteristics of contract. Modes of guarantee（mortgage，pledge，credit）cannot significantly reduce credit risk of new small ventures; Judged from financingstructure, the higher the financing proportion based on corporate equity is，the more it cansignificantly reduce credit risk.B. On research of credit risk evaluation models of new small venturesⅠ. On building evaluation models In this paper, credit risk assessment models are built based on three categories of creditrisk (two-category classification, three-category classification and five-categoryclassification), by using current representative analysis methods (multivariate discriminantanalysis, standard Logistic model, Mixed-Logistic model and neural network analysis).Empirical results show that these evaluation models not only have higher prediction accuracy,but also have basically same credit risk influence factors, which further validate the stabilityand reliability of building of conceptual model, screening of potential variables and analysisof variable factors in this paper.With the more granular classification levels of credit risk, the predicted accuracy of themodels declines, but overall, credit risk evaluation models of new small ventures, based onMLP and Logistic methods, have comparatively high comprehensive evaluation performance.Ⅱ. On comparative aspects of evaluation modelsJudged from predicted accuracy, robustness of evaluation, cost of false positives andevaluation performance, evaluation models based on different analytical methods anddifferent risk classification differ from each other, but the evaluation model based on MLPmethod and Logistic method performs well on the four aspects above. This paper concludesthat the evaluation model based on MLP method and Logistic method is more suitable forcredit risk analysis and evaluation of new small ventures.Ⅲ. On selection of evaluation modelsUnder different classifications of credit risk, evaluation models based on differentanalytical methods have their own advantages and characteristics under different conditionsand circumstances, therefore, this paper also makes recommendations on model selectionbased on different circumstances and conditions, under the modes of two-categoryclassification and three- category classification.Innovation and contribution of this paper are:First, study on credit risk evaluation, based on new small ventures as a specific objectand indirect financing as a specific form, on one hand, provides theoretical guidance forcommercial banks’risk evaluation and financing behavior on new small ventures, makesscenarios embedded knowledge innovation of specific object and form for theoreticaldevelopment of credit risk management, expands limitations of the study objects of theprevious model of credit risk evaluation, which were mostly large and medium-sizedenterprises and direct financing; on the other hand, provides inspiration and advice toimproving business operations and system environment.Second, this paper fully reveals the multi-dimensional factors which affect new small ventures’credit risk, changes the situation that scholars used to evaluate credit risk mainly byfinancial indicators, builds a risk evaluation model consisting of four major categories factorsof financial condition, characteristics variables of the venture, variable characteristics ofshareholders and contract characteristic variables, and makes empirical analysis, so as toenrich the breadth and content of the analysis dimension of credit risk impact, and to make themodel more efficient, the evaluation more accurate. This paper, based on uncovering potentialrisks influence factors, also tries to introduce "financing structure" as a variable to theevaluation model, proposes the idea of dividing types of financing and analyzing financingstructure according to "client-based financing", "transaction-based financing" and"equity-based financing". Empirical result shows that: there is significant correlation betweenfinancing structure variables and credit risk, and equity-based financing can effectivelyrelease the venture’s credit risk, which provides a theoretical basis and empirical validation tothe trade financing business and supply chain financing business currently promoted bycommercial banks.Third, the paper, considering the requirements of Barsel protocol and the practice ofcommercial banks, redefines the definition of credit risk, depicts three measurement forms ofgradual refinement of credit risk, builds evaluation models based on different credit riskclassifications with various analysis methods, and makes all-round comparative study(model prediction accuracy, robustness evaluation results, cost of false positives, evaluationperformance) of evaluation models from the horizontal (among different methods) andvertical (among different classifications) angles, which not only ensures and proves thatconclusions of this study and the model building are effective and accurate, but also amendsand expands the limitation of the previous research on credit risk, which scholars used toregard credit risk equivalent to financial hardship or risk of default, and the limitation of studyon only two-category classification (There is a gap between this risk definition, form ofclassification and the current international and domestic regulatory requirements and thebusiness practices of commercial banks).