Studies On The Small And Medium-sized Enterprises Listed On The Shenzhen Stock Exchange

As the most energetic portion of the economy, small and medium-sized enterprises (SME's) always play a very important role and have the potential to grow into successful companies. However, the situation for SME's in China is quite awkward. They are individually small and weak in the market though important as a segment group in the whole economy. With the most significant amount of business units, SME's in China are one of the vital powers for technological innovation and economic growth, and provide most jobs for the society. However it is hard for SME's to maintain continuous success, especially for the private ones. Some SME's can grow rapidly and significantly in just a few years, but few of them can survive for 20 years and transform into giant corporations. The major restricting factors for the development of SME's in China include the bottleneck in capital obtaining and the weakness of the managing structure. Accordingly, the analysis on how to improve the managing structure and the capital structure of SME's in China, is the basis for further studies on helping SME's to grow in terms of both the business size and management maturity. This dissertation includes five chapters: Chapter One is the analysis on the basic information of SME's on the Shenzhen Stock Exchange (SZSE). New issue: 20 million to 35 million shares to the public Net proceeds from issuance: RMB 100 million to 300 million Price earning ratio: comparable to the main board of SZSE Percentage of shares to public: low Controlling shareholders after issuance: mostly private companies Business segment: manufacturing ( high-technology and traditional industry, a significant portion of them competitive in science and technology) Geographical location: Jiangsu, Zhejiang and Guangdong provinces have more SZSE Small Businesses, in terms of the amount of companies, the net proceeds and the amount of high-tech companies Chapter Two is the analysis on the profitability and growth of SME's on SZSE. The profitability of SME's on SZSE is higher than that of the listed companies in the main board of the Shanghai Stock Exchange, particularly higher than that of the small companies. The average inventory turnover rate and the A/R turnover rate of SME's on SZSE are higher than the average levels of the companies listed in the main board of SZSE, indicating the shorter operating cycle and the higher efficiency of asset operation of SME's. Meanwhile the indices of cash flow of SME's are better, implying that their liquidity is higher than the companies listed in the main board. The following are the features of SME's on SZSE in terms of the operation achievements and financial situation: The main businesses are profitable and generate significant portion of revenues. SME's on SZSE own quality business assets that operate efficiently and effectively. SME's on SZSE have healthy asset coverage and solvency ratio.SME's on SZSE enjoy strong cash flow from operating activities. The main businesses grow well but the net profits grow slightly more slowly than the revenues. Chapter Three is the analysis on the managing structure of SME's on SZSE. The percentage of total share capital and directors controlled by major shareholders is higher than that of companies listed in the main board of SZSE. Major shareholders control the operation of SME's with less investment. As a result: Major shareholders might manipulate the companies'assets and activities if the corporate management is not adequately established. The capital structure mentioned above brings about higher risks to the public shareholders of SME's on SZSE. Chapter Four is the analysis on the capital structure of SME's on SZSE. The debt-to-asset ratios are usually low. And the structure of debts is not very healthy with a large portion of short-term debts. The related factors include: Needs and usage of funding Profitability from business operation Business risks Asset allocation Market potentials of the products and services Evaluation by the creditors and credit rating Management's consideration of business risks Different attitudes to debts by companies with different capital structureManagement style for authorization Controlling power in the management Business segment in which the company operates Size of business operation Chapter Five is the analysis on the business risks of SME's on SZSE. The major business risks include operational risk, integrity risk and empowerment risk. The related strategy and approaches to manage business risks and improve business management should focus on such three types of risks. Based on the above analyses of SME's on SZSE, it is suggested to analyze their individual situation of corporate governance and capital structure, and thus to improve their business management with the following strategy and approaches: Improve corporate management by introducing mutual management by parties with commercial interests in the companies. With the participation of such parties, the joint monitoring control over the management of the company will be improved significantly. Ensure the independence of directors by introducing the related mechanism for their operation. It is suggested to re-engineer the organization for board of directors in listed companies, and establish the operational practices of the board with detailed design of directors'responsibilities, operation processes of directors, nomination policy of directors, incentives and monitoring controls over independent directors, evaluation of the operational results of directors, and etc., in order to enable the effectiveness of the board's operation.