Venture Capital, Financing Constraints And Performance Of SMEs

For a long time, the small and medium enterprises(SMEs) suffer from a serious credit discrimination due to the inefficient allocation of credit resources in our country. However, SMEs usually have significant features of higher growth and higher risk, which makes it difficult to meet their large financing needs. So SMEs often have a strong incentive to bring in outside investors to solve their financing problems, thereby enhancing the business performance. Venture capital has grown more mature as an important source of financing in developed countries, which plays an important role in promoting the development of SMEs. With the development of capital market, venture capital becomes more active, and more and more venture capital engaged in SMEs actively, which has injected new vitality into the capital market. But there is a problem can't be ignored, due to the small size and limited financing channels, the overall development of China's venture capital is not mature enough, there is a big gap compared with developed countries. Then, under the particular cultural background of venture capital in China, whether the introduction of venture capital can effectively alleviate financing constraints, and thus improve the business performance? Despite the limited funds of venture capital for SMEs, whether the introduction of venture capital can improve the debt financing environment for SMEs and help SMEs get more bank loans, thereby solving the problem of SME financing constraints? And what are the economic consequences?Based on the literature review and theoretical analysis, the paper selects the data of SMEs on the NEEQ(commonly known as "New Third Board") from 2013 to 2014 as the research sample, by defining venture capital, the sample is divided into 336 VC-backed SMEs and 1545 non-VC-backed SMEs. Firstly, the cash-cash flow model is used in this paper to test the effect of venture capital to SME financing constraints; and selects the profitability indicators and growth indicators as dependent variables of the multiple linear regression models, to test the effect of venture capital on the performance of SMEs. Then this paper analyzes the mechanism of venture capital to SME financing constraints from the perspective of the credit financing facility effect of venture capital, and uses total loans, short-term loans and long-term loans as the dependent variables in empirical testing. Finally, this paper analyzes the economic consequences of such credit financing facility of venture capital, specifically including the tests of SME loan defaults and the performance of SMEs.In this paper, the empirical results show that: venture capital can ease the financing constraints of SMEs. It means that the VC-backed SMEs have a lower degree of cash-cash flow sensitivity than the non-VC-backed SMEs. In terms of SME performance, it finds that the performance of VC-backed SMEs is no better than the performance of non-VC-backed SMEs in profitability indicators. However, its performance in the net assets growth rate and total assets growth rate are significantly higher than non-VC-backed SMEs, which shows that the positive role of venture capital to SMEs mainly reflected in the ability to cultivate the growth of SMEs. The reason may lies in the high-growth SMEs have a strong motivation for the use of funds and other resources to achieve rapid expansion, even at the expense of short-term profits, which resulting in poor short-term performance. In addition, the paper finds that venture capital can effectively reduce the information asymmetry between banks and SMEs through its certification role, monitoring role and its unique relationship network resources. It improves the bank willingness to lend to SMEs and thereby helping SMEs obtain more bank loans. That is to say, venture capital can bring convenience in credit financing for SMEs. It also provides concrete evidence for that venture capital can ease the SME financing constraints. Through further study, this paper also finds that: the credit financing facility effect of venture capital can reduce the incidence of loan defaults, and the more bank loans, the better performance of VC-backed SMEs. It helps SMEs make better use of the loan funds and improve the efficiency of resource allocation of bank credit.Overall, this paper verifies the positive role of venture capital to a certain degree. Simultaneously, it provides theoretical support for the venture capital industry development and healthy growth of SMEs. Specifically, this paper verifies that venture capital has a positive impact on SME performance by effectively alleviate the financial constraints of SMEs, and it clarifies the mechanism of venture capital to ease financing constraints. It also examines the effect of such credit facilities on SME performance and bank credit resource allocation. In practice, this paper also provides theoretical guidance to broaden the financing channels for SMEs and improves credit allocation efficiency for banks. At the end of the paper, policy suggestions are proposed to promote the development of venture capital industry in China.