The Empirical Study On Private Equity For The Development Of SMEs In China

SMEs play an important role in economy development. Bai Qin-Xian and Xue Yu-hua consider that SMEs have features'of comparative advantage, differentiation and diversification, and during the economy transition period in China, SMEs have made a major contribution to the economy development by being market-oriented and adapting to the factor endowment characteristics. According to the survey of the authorities, the number of SMEs in China is more than 99% of total number of the enterprises, and the industrial output, tax contribution, exports and employed number respectively occupy 60%,40%,60% and 75% of the country's total. However, the development of SMEs in China has been in an embarrassing situation of a "strong bit weak". There are many problems that constrain the development of SEMs, and financing is the most important one.It is very difficult for SEMs to make a loan from banks. Banks wish to lend money to enterprises with sufficient secured in order to ensure the safety and profitability of funds. But some SMEs are too small to be sufficient secured, and are lack of transparency and standard in financial information, so banks are reluctant to lend to SMEs. Financing in the stock market and bond market is more difficult to SEMs, and most of SMEs even can not meet the requirements of the GEM launched recently. Private Equity invests in equity of the non-listed companies, which is a non-publicly traded equity investment. Private equity investment fund provides SEMs the channel of financing and entrepreneurship.In developed countries with mature capital markets, like Europe countries and the United States,private equity is an important source of funds for the emerging enterprise, the unlisted small and medium-enterprises, the firms in financial difficulties, and the listed companies seeking financial support for mergers and acquisitions. Wu Xiao ling, the deputy governor of Bank of China, also proposed that China should vigorously develop the private equity investment funds. Financing through the private equity investment fund not only can solve the funding problems of SMEs, but also can help SMEs to solve their own problems and promote the development of SMEs drawing on the investment characteristics of private equity funds, and thus contribute to China's economy development.The topic of this paper is formed under such a background. Purpose of this study is:According to the theoretical value and empirical values of private equity for SMEs, making some suggestions on the development of China's private equity.This paper is divided into seven parts. The concrete structure is as follows:The Introduction briefly describes the background and significance of this topic, the basic ideas and logical structure of this paper, and the methods of research.ChapterⅡstates the important position of SMEs in China's economy by listing the statistical data, and analyzes five issues of the development of SMEs in China:firstly, the financing difficulties; secondly, relatively lower quality of personnel; thirdly, family-management model; fourth, the lack of credit; fifth, human resource management mechanism unsound;ChapterⅢreviews the development history of private equity capital market in China, which describes that private equity investment in China has a strong development momentum with attention and support from government and community. Then, the author makes an analysis on the problems in the development of China's private equity funds.ChapterⅣanalyzes the characteristics of private equity funds investment. First, it describes that the private equity funds think a lot of the technology and team owned by enterprise, and the scale and profitability of enterprises is not the investment criterion. Due to this feature, SEMs become the main object of private equity capital investment; Secondly, by analyzing investment process of private equity funds, it shows that private equity funds is also actively involved in the management of the enterprise to help enterprises standardize their operations, which is the most lacking resource of SMEs in addition to funds; Third, based on the goal of finally withdrawing from enterprises and getting an investment return, the private equity capital will develop the enterprise into a company with listed qualifications or enough attraction for other buyers; fourth, due to the involvement of private equity capital, SMEs can share risks in technical innovation with it; fifth, because of the double-agent characteristics, the fund's general copartners will spend a lot of time and effort to monitor the business operations and help business develop. Chapter V demonstrates the private equity capital's role in promoting SME development. First, private equity funds have a very strong risk management capabilities and combined-invest capacity, making the under-funded enterprises can do technical research boldly in the risk-controlled environment, which promotes technological innovation and ultimately helps enterprises transform their operational areas to promote industrial upgrading. Second, the existence of private equity capital has added a new level in direct financing market in China, deepening the capital market. The flexible investment program also meets the personality need of SEMs. Third, the survey on enterprises helps to identify a group of outstanding entrepreneurs. Fourth, it can solve the information asymmetry problem faced by private equity funds through buying shares of the enterprises and transforming the equity structure of it. Fifth, enterprises can improve their governance structures by taking advantage of the plentiful management experience and standardized management processes of private equity funds.Chapter VI selects the listed companies in SMB of Shenzhen Stock Exchange as sample data, and investigates whether they have the PE supports. In aspects of profitability, solvency, asset operational capacity and ability,the author respectively establishes 11 evaluation index, including:main business profit rate, total assets profit rate, return rate of net assets, asset-liability ratio, current ratio, quick ratio, total asset turnover ratio, inventory turnover ratio, accounts receivable turnover ratio, main business growth rate, net asset growth rate. And then, the author makes factor analysis with SPSS software. According the composite score of the various listed companies, it concluded that the involvement of private equity investment funds can indeed enhance the overall strength of SMEs, and further demonstrated on the analysis of the value of private equity capital in the previous chapters.Chapter VII made some advice on the development of China's private equity capital market. The first is the source of funds, it suggested that we should create a system environment that encourages pension funds, insurance funds, private capital and foreign funds to invest in the private equity capital markets; the second focuses on advantages of the limited partnership form of organization for private equity funds; the third suggested the establishment of an appropriate credit platform for the fund managers, which helping to monitor the fund managers market and improve the efficiency of private equity capital investment; the fourth proposed the establishment of the equity trading market in addition to the stock market, widening the private equity exit channels. The fifth proposed that it should improve the intermediary functions of private equity capital market to provide enterprises with share registration services and trusteeship intermediaries.