Statistical Research On The Market Performance Of SME Collective Notes

SME (small and medium-sized enterprises) is an indispensible force that drives the Chinese economy forward. Even though an important role in the development of Chinese economy, it still faces the predicament of fund shortage. Due to their size, poor management systems, high operation risks and lagging equipments etc, SMEs are bound to face a series of obstacles, even in the very initial stage. A shortage of funds makes it difficult for SMEs to move forward. Moreover, the priority of the Chinese economic system being SOE, SME’s marginal standing results in difficulty in financing. Unlike SOEs, SMEs do not easily reach the loan standards of commercial banks. Commercial banks are reluctant to provide loans also in that SME loans are often small in volume, distributed, costly, risky and less cost-worthy. Those who are willing to provide loans are frustrated by rigid approval systems. All these factors together result in SME’s difficulty in financing.The Chinese government is now paying more and more attention to the issue of SME financing. Incentive measures were taken. Interbank bond market has become an important funding platform for SMEs. According to the official website of National Association of Financial Market Institutional Investors (NAFMII), SME Collective Notes (SMECN) is growing fast in the financial market and has been regarded as an innovative, SME-oriented financial product. Collective notes refer to the financial innovative instrument led by The People’s Bank of China, organized by NAFMII and that mainly involves interbank bond market members. It is normally issued by corporate entities (between2(inclusive) and10(inclusive)) in the interbank bond market under unified product design, unified title, unified credit enhancement and unified issuance/registration, where the principal and interest are repaid within a period agreed. The issuance of SMECN alleviates the over-dependency of corporate financing on bank loans, initiates more sources of SME direct debt financing and brings new opportunities for the healthy development of SME.Characteristics of SMECN are:limitedly collective, unified issuance, client-specific liabilities and credit grading etc. It has been under wide attention since issuance. Yet studies on SMECN often focus on its feasibility, mechanism, current problems and suggestions for future development. No empirical studies on SMECN can be found. This thesis takes Shangdong Shouguang (SDSG), Shangdong Zhucheng (SDZC) and Beijing Shunyi (BJSY), the very first three successful SMECNs as subject of study and assesses the market performance of SMECN with numerical methods. The findings of the thesis will contribute to the future design of a more market-friendly SEMCN.The offering period of SMECN being1to3years, SDSG, SDZC and BJSY are academically representative in that by the end of2012, these three SMECNs have been issued for1year,2years and3years respectively. Through detailed studies on the status quo, mechanism, system, organization and operating procedures of SMECNs, and through comparative studies on SMECN with traditional financing means, we find that SMECN, with its relatively complete mechanism, its merits of credit grading and risk sharing, helps reduce cost in SME financing, improve SME governance structures, enhance corporate finance system and promote SME development.The market performance of SMECN has been under focus ever since its first issuance in2009. Yet the number of empirical studies on collective notes is quite limited. This thesis compares SMECN with interbank corporate bonds in terms of fluidity, profitability and volatility. Applying the Structural Equation Model, the thesis examines the relationship between the properties of SMECN and its market performance and comes to the conclusion that one SMECN enjoys better market performance if its interest rate is higher, offering period is shorter and credit risk is lower or if it has more vouch. Based on the above conclusion and the special properties of SMECN of China, the thesis also discusses means to modify SMECN, including strengthen relevance with target enterprise, increase collective efficiency, proper pricing, value the importance of internal credit grading, improve legal mechanism, build a sound regulatory system, push development of intermediary agencies, build government platform and enlarge SMECN reach etc.This thesis is innovative in that it combines empirical studies with qualitative studies, establishes structural equation model based on relevant data of SMECN in interbank market, analyzes the innate properties of SMECN and provides suggestions for future improvement. Meanwhile, under theoretical guidelines, the thesis carries out detailed studies from the microscopic angle. By analyzing the market performance of specific SMECNs, the fluidity, profitability and volatility of SMECN in interbank market are examined and a comparison between SMECN and other corporate debts is presented.Since SMECN is still in the initial stage, it is controversial in various aspects. How to stage SMECN to effectively reduce financing cost while maintain market popularity has been the central issue of discussion. This thesis sets from actual condition of Chinese bond market, studies the issuing status of SMECN in China and discusses possibilities for improvement of SMECN. The thesis is significant in that it finds a new channel for SME financing in China, contributes a new investment variety for the bond market, and propels financial innovation.