Research On The Impact Of Private Equity And MD&A On Bank Loans Of Chinese GEM Listed Companies

The financing decision of small and medium-sized enterprises(SMEs)is a core issue of their development.When the internal financing can not meet the financing needs of SMEs,and the external financing,such as issuing stocks and bonds,is very difficult,bank-loans financing is very important to SMEs in China.However,a large number of research literatures at the enterprise level show that SMEs have poorer bank-loans financing channels and higher borrowing costs than large enterprises,while innovative SMEs(ISMEs)lack collateral due to "light assets,heavy innovation",and the problem of borrowing is more serious than other types of SMEs.How to alleviate the problem of ISMEs' borrowing difficulty is a common concern of policy makers and business circles in China.It is more practical to carry out relevant research on this issue.A large number of research literatures in the field of finance have examined the influencing factors of bank loans.Combined with the characteristics of ISMEs,the equity structure factors,board governance factors and management discussion and analysis(MD&A)information factors are very important for ISMEs.The controlling shareholders of ISMEs have a deep control over the company.As an active supervisor,private equity(PE)institutions become non-controlling shareholders after investing in ISMEs,can supervise the behaviors of controlling shareholders and managers,and provide professional value-added services.Compared with other types of non-controlling shareholders,PE institutions have a stronger ability to check and balance the controlling shareholders.In addition,the appointment of directors by PE shareholders is an important way to protect PE's interests.It can enhance the ability of checking and balancing of non-controlling shareholders,play an active role in corporate governance,weaken the influence of controlling shareholders in the arrangement of the board of directors,and inhibit the "hollowing out" behavior of controlling shareholders.This paper studies whether PE affects the bank loan contracts of ISMEs from two perspectives: whether PE invests or not and whether PE dispatches personnel to the board of directors or not.In addition,MD&A information can comprehensively show the information about the future development of the enterprise to the investors,and the existing evidence shows that the investors in the stock market can perceive the different MD&A information disclosed by the enterprise,so as to change their investment decisions.The investment decision of bank investors should be influenced by MD&A information.At the same time,PE can directly and indirectly affect MD&A information disclosed by enterprises.After PE invests in enterprises,through the post investment management mechanism,it will play a positive role in the future strategic planning,future risk identification and response of enterprises,improve the governance structure of enterprises,and improve the quality of MD&A information disclosed to the outside investors.This paper studies whether PE invests and PE dispatches personnel to the board of directors can influence MD&A information or not.It can demonstrate the influence mechanism of PE institutions on the information disclosure of the invested enterprises from a new perspective.Finally,the logic of this paper can be expressed as "PE shareholders ? MD&A information disclosure ? bank loans",that is,in addition to PE institutions directly impact on ISMEs' bank-loan financing,PE institutions can indirectly affect enterprises' loans by influencing MD&A information disclosed by ISMEs,that is to say,MD&A information can play an intermediary role when PE affects bank loans.In this way,we can deeply understand which path PE affects the bank-loan contracts,which is helpful to analyze the key points of the current ISMEs' loan difficulties,and help banks more reasonably evaluate the loan default risk of ISMEs,so as to improve the allocation efficiency of ISMEs' credit constraints and optimize the bank credit resources in ISMEs for experience support.In this paper,information asymmetry theory,principal-agent theory,signal transmission theory and credit rationing theory are the theoretical basis,this study shows from three conclusions.Firstly,the research on the relationship between PE and bankloans shows that compared with the enterprises without PE participation,the PE participating enterprises have larger scales of bank loans,lower borrowing costs,more reasonable term structure,and the impact of PE on the board of directors of enterprises is more significant.The higher the degree of power intervention,the more favorable it is for banks relax loan contracts.Then,further analysis of the role of PE characteristics shows that the impact of different characteristics of PE investment on bank loans is different,in detail,foreign and state-owned backgrounds PE,higher reputation PE,larger shareholding ratio PE investment,longer term PE investment,joint investment have more positive effects on the bank loans of the invested enterprises.Finally,the results of further empirical tests show that PE has an impact on the bank loan contracts through the supervision mechanism and incentive mechanism.Then,this paper studies the relationship between MD&A information and bankloans.This paper uses a more objective and efficient text vectorization method to measure the usefulness of MD&A information disclosed by GEM listed companies,and makes an empirical test with the data obtained.The results show that MD&A information contents have significant positive correlation with bankloan scales,bank borrowing cost,and the term structure of bank loans.It proves that MD&A information can convey company-level information to creditors and help banks make reasonable judgments when making lending decisions,and that the forward-looking information content and risk information content are relevant to banks and the impact on lending decision-making is greater than other information,because these two kinds of information can help information users predict the company's future business development and prompt possible risks,help creditors such as banks to assess the company's future development opportunities and potential risks more clearly and comprehensively,and improve the accuracy of the bank's default risk assessment of the company,reduce the degree of information asymmetry.Then through further empirical analysis,it is found that the higher the degree of information asymmetry,the more significant the impact of MD&A information on bank loan contracts.It proves that MD&A information can help enterprises obtain more relaxed loan contracts by alleviating the degree of information asymmetry between banks and enterprises.Finally,this paper studies the relationship between PE and MD&A information and the intermediary effect of MD&A information.The results show that PE can help enterprises improve the information content of MD&A,especially the information content of forward-looking information,and this effect is more obvious after private equity intervenes in the board of directors.MD&A information plays an intermediary role in the influence of private equity on bank loan contracts,that is,private equity institutions help enterprises improve their normal management,strategic management and risk management,and on this basis,transfer more information content to external creditors about the analysis of business operations,future development planning,etc.Private equity can help ISMEs reduce default risk when banks assess corporate default risk,and PE plays a more significant role when it intervenes in the board of directors.Based on the theoretical analysis and empirical research results,this paper puts forward the following policy recommendations: from the perspective of macro policy makers,policy makers should encourage commercial banks to treat state-owned enterprises and private enterprises fairly in the process of credit resource allocation,and appropriately relax the loan conditions for ISMEs;formulate investment and loan linkage policies that are conducive to the formation of effective information sharing and cooperation mechanism between PE and commercial banks;and promulgate a clearer MD&A information disclosure regulation,and formulate relevant legal provisions and auditing standards of MD&A as soon as possible.From the perspective of micro enterprises,PE institutions should pay more attention to the post investment management of the invested enterprises,actively send personnel to the board of directors of the enterprises,appropriately introduce partners from foreign and state-owned PE,improve their reputation,make joint investment with other PE institutions,pay attention to long-term management after investment,and properly improve the proportion of investment and shareholding;ISMEs should actively cooperate with PE institutions and not exclude PE from the board of directors,and should pay more attention to the disclosure of MD&A information,actively communicate with banks,and send positive signals to banks;banks should actively develop ISMEs customers,pay more attention to the important non-financial information such as forward-looking information and risk information,and improve the efficiency of loan resource allocation.