The Research Of The Private Equity Fund And SME Corporate Governance In China

Small and Middle Enterprises (SMEs) are a major innovator in China’s economic andsocial development, but because of the shackles of the existing financial system, SMEs inChina compared to state-owned corporation, are still in a weak position. On the one hand, dueto the disadvantage of their own origin, assets and size, small and medium enterprises aremore difficult in direct financing and indirect financing; the other hand, SMEs are oftendifficult to form effective corporate governance structure, but also serious constraints of theoperating capacity. Especially like the Chinese of this transition, the market system is not yetmature, most SMEs are not in strict accordance with the market-oriented elements to build theeconomic organization, and because the influence of culture, corporate governance of SMEsare particularity.As the private equity fund research started in the developed countries of Europe andAmerica, in a relatively complete system of market economy, most of economists and financescholars focused on the following areas: the contractual relations in the private equity funds;performance improvement of the invested entity; stakeholders’ governance. Obviously, only afew people make an entire study about the private equity funds with SMEs management. Boththe traditional theory of SMEs and the private equity funds theory neglect that, in thetransitional economy body, private equity funds have a comprehensive influence on theinvested SMEs corporate government. This paper put the private equity funds and SMSEcorporate government as a research subject, basing on enterprise financing theory, corporategovernance theory, network Guanxi theory, and try to answer such several research problemsfrom a new perspective of neo-institutional theory:(1) What is the development history,present situation and the trend of private equity funds in China?(2) What is the characteristicsand impacts of Confucian culture and Guanxi to the SMSE governance in China?(3) How toweaken the effect of Guanxi governance of SMEs in China private equity funds?(4) What isthe application of mechanisms of private equity fund in the governance of SMEs in China?Although from viewpoints of entrepreneurship theory or the corporate governance, manyscholars make some scattered research about the financing obstacle and corporate governancewhat private equity funds could make for the SMEs, but the systematic research on variousaspects of financing, corporate governance what private equity funds could make for theSMEs is still in the beginning. This important arrangement of this paper is as following: First of all, the systematic review of the history issues and trend of private equity fundsin China. Secondly under the Guanxi-oriented management, we build up the game modelinganalysis on the features and its influence of the SMEs Guanxi corporate governance in China.Thirdly we discuss how the private equity investment improves the governance of SMEs afterintroduction of private equity investment. Finally we use some case study to show theexploratory research. On the one hand, we promote the development of private equity fundsand localization studies to sneak into the scenario management. On the other hand, we alsoprovide some necessary reference for the government policymakers and entrepreneurs aboutthe management practice.Through this research, the author draws some conclusion:(1) Due to the state systematictransition and the market economy developing status, China’s private equity has manydeficiencies compared with western countries, but its positively financing and governancerole for the SMEs still get recognised.(2) The guanxi culture and complex environment makethe SME entrepreneurs use the guanxi governance to enhance the internal cohesion andrespond to external challenges.(3) The guanxi governance as an informal system has aprofound impact on the operating behavior of SMEs in China. In the mechanism entrepreneurfor the pursuit of maximum family income caused by damage to the interests and otherstakeholders, undermine fair market competition and trading mechanism.(4) The privateequity funds as a new mode of financial investment to help solve this guanxi governance ills.Innovation of this paper as follows:(1)Basing on the background of the transitioneconomy, combining with the newest study of worldwide scholars, this paper analyzed theGuanxi governance and its influence on SMEs,and proposed the new conception of Guanxigovernance and made the progress of Chinese local management study.(2) Introducingcomparative institutional analysis into the study of private equity and SMEs corporategovernance. Defining Guanxi governance embedded as an informal institutional arrangement,thus under the institutionalized linkage and internal rules, we discuss the game evolution andequilibrium of the formal board of director’s governance mechanism and Guanxi governance.(3) Through this study, we find that private equity funds not only to provide financing supportfor SMEs in China, and is an effective means to improve the bad governance of SMEs inChina.(4) By the way of the case interview and analysis of the local SMEs, the paper verifiessome hypothesis about the influence of private equity on SMEs corporate governance, andcontributes to the relative-lacking empirical research in this study field in this institutionaltransformation country.