Analysis On The Correlation Of Private Equity And Short Term Growth Of China’s Small And Medium-sized Enterprises

Private equity capital refers the capital that to be invested into the unlisted companies to buy its equity, while the investors providing value added service to the invested companies for the purpose to realize profits by selling the equity according to listing or transfer. With the essence of providing reasonable value judgment and regularity value added service, private equity has characteristics of investing lasting, no fluidity, information dissymmetrical, service management, high venture and prospecting high profits. As the important subsystem of modern capital market, the private equity market plays an important role in boosting the development of SMEs, promoting the growth of economy and technology innovation, improving employment, expediting industry recombination and technology upgrade. Hence, private equity has gotten the great support from every government in the world and has the rapid development in recent years.Private equity funds generally take the form of non-public issuance. PE raises from the individuals or institutions (limited partners, LP) which have the capacity of risk identification and bearing,then take the funds to the investment management sector (General partner, GP) which consists of experts for operation. The PE funds are invested into different unlisted companies and provide value-added services, it often includes venture capital funds (VC), infrastructure funds, corporate merger and acquisition funds and so on.Its characteristic is"assets collection, investment selection, risk diversification, professional management, and value growth". IN recent years, PE in China continues to expend the scale under the support of the government; it plays an important role in the growth of economy in china, especially for small and medium high-tech industry. As the innovative investment fund, PE can contribute to the SMEs which have many difficulties by making them dynamic, which is of strategic significance for china’s economic development.SMEs occupies an important place in our national economy and place an irreplaceable role on alleviating employment pressure and activating the market economy, however, financing is the biggest issue which is winding most of SMEs in china over the years and has not been solved effectively. Practice shows that, though the traditional financing way such as bank loan or debt financing offers money to SMEs on some extend, but due to the higher borrowing cost and risk and the internal defects existing in SME such as small scale, low technology, short of fixed assets, not standard financial system, nonpublic information, unclear governance structure, rigid management mode, low quality of operator, weak credit sense, SMEs urgently need to find a new financing way when they are keeping development of their own at the same time.Based on the study of the characteristics of private equity investment and the development of SMEs, firstly we revealed that PE not only can offer a new financing channel for SMEs, but also can help SMEs raise the level of corporate governance, improve the professional quality of manager, reform the shareholder structure, enhance the refinancing ability of SMEs, shorten the business cycle and reduce the risk, finally gains the profit through the listing of SMEs and makes SMEs’future bright. Secondly, we can prove a result through the empirical analysis that SMEs can promote the growth ability when they finance by PE. Lastly, in view of our country’s present PE market development, I put forward some suggestions.The innovation and value of this paper are that I combine the theory of PE and SMEs’ financing, research the growth index by using SPSS software and study qualitatively, and then get the result of the relationship between the PE and comprehensive growth value by using the mean comparison method. It is not a long time since our country’s SMEs’ board launched and we must select the latest data. The limitation of the paper are that because china’s private equity market is still in its initial stages and the statistics data is very absent, it is very hard to quantitatively analyze each effect which brought to SMEs by PE and because there is a time lag between annual report released time and the data selected time, I can’t get the latest year data which is showing the SMEs’ next year performance from the time they listed in, which reduced the strictness of the analysis procedure and conclusion and should be the research fields in the future.