U.S. small and medium-sized enterprise financing structure and mode
China's small and medium-sized enterprise development situation compared with the United States, a far cry, the study of the U.S. small and medium-sized enterprise financing mode to solve the existing small and medium-sized enterprise financing difficulties in China has a certain value of reference, then their financing structure and mode, we understand what?
The U.S. currently *** there are more than 21.4 million small and medium-sized enterprises, accounting for 99% of the total number of U.S. enterprises, small and medium-sized enterprise employment accounted for 60% of total employment, the new increase in employment opportunities, 2/3 is created by small and medium-sized enterprises, small and medium-sized enterprises accounted for the output value of 40% of the gross domestic product. More importantly, SMEs have a strong capacity for innovation, with more than half of all innovations and inventions in the United States realized in small businesses, and per capita inventions in small businesses twice that of large businesses. And SMEs also contribute greatly to scientific and technological progress. High-tech companies in the United States are usually SMEs at the start-up stage.
The U.S. government's policy loans to domestic small and medium-sized enterprises (SMEs) are few in number, and the government mainly formulates macro-control policies through the Small and Medium Enterprises Administration (SMEA), which guides private capital investment in SMEs. Its SMEs financing methods are: (1) SME owners own savings, accounting for about 45% of SMEs investment; (2) SME owners borrowing from friends and relatives, accounting for about 13% of the total SMEs investment; (3) loans from commercial banks; (4) financial investment companies, led by the U.S. Small and Medium Enterprises Administration of SMEs investment companies and venture capital firms is SMEs an important source of capital mobilization, which together with commercial bank loans account for about 29%. However, SME investment companies and venture capital companies invest in loans at higher interest rates than commercial bank loans; (5) government funding, i.e., a very small number of direct loans to SMEs provided mainly by the SME Authority, accounting for about 1%; (6) securities financing, which accounts for only about 4%.
1, commercial bank loans
Due to the small and medium-sized business risks, creditworthiness is lower than that of large enterprises, commercial banks are generally reluctant to provide loans to small and medium-sized enterprises. To solve this problem, the U.S. Small and Medium Enterprises Administration came into being. It enables SMEs to obtain loans from financial institutions by providing them with guarantees. Of course, the loan interest rate will be 2-5 percentage points higher than that of large enterprises because of the higher risk. In specific operation, the United States small and medium-sized enterprises first to the Small and Medium-sized Enterprises Administration to apply; Small and Medium-sized Enterprises Administration of the guarantee object to stipulate certain prerequisites to meet the conditions of small and medium-sized enterprises to provide Tanbao; once the guarantee is established, that is, the Small and Medium-sized Enterprises Administration of the financial institutions, when the borrower is overdue and can not return the loan, guaranteed to pay no less than 9O% of the untried portion of the loan, but Small and Medium-sized Enterprises Administration to provide Guaranteed loans do not exceed $750,000 and the guaranteed portion does not exceed 90% of the total loan amount. The average amount of loans guaranteed by the Authority is $240,000 and the repayment period is 11 years. Between 1980 and 1998, SMEA*** provided 280,000 guaranteed loans totaling $41 billion. A small amount of commercial bank lending is also available to SMEs on a regional basis, but at higher interest rates and for shorter terms.
2. Financial investment companies
This includes two forms, namely SME investment companies and venture capital companies. SME investment company is to provide financing services for small and medium-sized venture capital companies. 1958, the United States in the adoption of the Small Business Act, the government set up the Small and Medium Enterprises Administration and the provisions of the Small and Medium Enterprises Administration to review and license the establishment of small and medium-sized investment companies. It can obtain very favorable loan support from the federal government, and can generally obtain preferential financing of not more than $90 million. Specific financing can be in the form of low-interest loans or the purchase and guaranteed purchase of the company's securities. However, SME investment companies that are licensed and supported by financing can only invest in qualified SMEs and cannot directly or indirectly control the invested companies in the long term. The direction of investment is mainly SME development and technological transformation. By 1998, there were more than 300 SME investment companies in the United States***, which accounted for a considerable proportion of the venture capital funds. From 1958 to the present, small and medium-sized investment companies have invested in 100,000 small and medium-sized enterprises, the amount of investment has exceeded 13 billion U.S. dollars. Venture capital companies are also private institutions. In the United States, microelectronics technology, information technology, represented by the rapid development of new technology industries, which prompted many science and technology entrepreneurs from the United States of America's universities, research institutes, large corporations, large companies in the independent, the establishment of development-oriented small and medium-sized enterprises. Venture capital companies are expected to innovation may produce high returns on such courageous innovation investment in small and medium-sized enterprises to make capital investment, for those difficult to get loans to provide loans to small and medium-sized enterprises in order to promote the development of science and technology and innovation of small and medium-sized enterprises.
3. Government funding
There are three main types of government funding:
(1) The Small and Medium Enterprises Administration (SMEA) grants direct loans to SMEs with strong technological innovation capabilities and good development prospects, but in very limited quantities. Its specific operation is to first provide guarantee for these SMEs in order to obtain loans from financial institutions. However, if two or more institutions refuse to grant loans to SMEs, or if the SME Authority coordinates with them and they still cannot obtain a loan, the SME Authority will grant loans to eligible SMEs. However, the maximum loan amount is US$150,000, and the interest rate of the loan is lower than the market interest rate in the same period. This is the only direct government funding in the United States and the interest rate is lower than the market rate of preferential policies.
(2) The Small and Medium Enterprises Administration (SMEA) provides natural disaster loans to SMEs affected by natural disasters. This special help, its purpose is to enable those in good business condition of the affected enterprises to rebuild. According to statistics, since the establishment of the loan in 1953, the Small and Medium Enterprises Administration has provided 114 million natural disaster loans totaling 16.4 billion U.S. dollars.
(3) SME innovation research funding. SMEs are an important force for technological innovation in the U.S. More than half of the innovations in the U.S. are realized in small businesses, and the per capita inventions of small businesses are twice that of large businesses.
In order to promote the scientific research and development of small and medium-sized enterprises in the United States, according to the Small and Medium-sized Enterprise Innovation Development Act, the U.S. Congress enacted the Small and Medium-sized Enterprise Innovation and Research Program in 1982, which stipulates that all the allocation of more than $ 100 million of research and development costs, the relevant government departments must be provided with a certain proportion of funds to the Small and Medium-sized Enterprise Innovation Program for funding small and medium-sized enterprises to carry out technological development and technology development and transformation. This statutory percentage is highly legally binding and mainly subsidizes technologists with technological expertise and the ability to invent and create to create technological enterprises. All eligible SMEs can apply to the SME Authority for the SME Innovation and Research Funding to turn their patented inventions into reality.
Mode of financing, financing structure and the configuration of corporate control
I. Mode of financing and corporate governance mechanism
Mode of financing refers to the specific form adopted by enterprises to raise funds. According to the relationship between the financing method and corporate governance can be divided into: keeping distance financing and control-oriented financing.
1, keep the distance type financing
From the financing method and the relationship between corporate control, keep the distance type financing to the distribution of corporate control and whether the enterprise can achieve a certain goal linked. The investor does not directly intervene in the strategic decisions of the enterprise as long as he receives the contractual payments. If the firm fulfills its obligation to pay the contributor, control of the firm is handed over to the insider, and vice versa, control is automatically transferred to the contributor. It is because this type of financing is organically linked to the firm's ability to achieve the goal of giving and receiving, the corporate governance structure arising from keep-at-a-distance financing is called ? Targeted Corporate Governance?
Keep-at-a-distance financing is very dependent on the liquidity of the market for the firm's assets, and therefore on the extent of the ability to exercise property rights and the general business environment. Since control is automatically transferred to the investor in the event that the enterprise fails to perform, the assets of the enterprise should have the essential characteristics of more stable performance and less volatility in their market value, and at the same time, such assets must also be highly liquid in the market so that they can be realized in a timely manner. If an enterprise's assets are highly volatile in value and do not provide sufficient cash flow, then the investor's control of the camera is meaningless and the governance structure based on it loses the basis on which it exists. Consequently, enterprises with a large proportion of tangible assets, particularly real estate, in their asset structure and where this real estate is more liquid are less risky for investors in using this type of financing because their value is less passive relative to intangible assets. Conversely, when the assets have a large corporate identity (they are highly specialized), i.e., they are less valuable in other firms, the use of this type of financing will increase the risk of default and the contractual costs of settling the covenant. The main financing instrument that corresponds to the keep-at-a-distance type of financing is debt financing.
2, control-oriented financing
Control-oriented financing is characterized by investors directly involved in business decisions, especially investment decisions. Investors bear responsibility for their decision-making behavior, and enjoy the corresponding residual claim. As this type of financing is associated with direct control by investors, the resulting corporate governance structure is called ? interventionist corporate governance?
The most typical financing tool for this type of financing is the stock. Due to the existence of capital markets and the characteristics of modern joint-stock companies, the exit mechanism facilitates the shareholders when there is a significant deviation between the operator's objectives and the shareholders' objectives and when there are serious inefficiencies? vote with their feet? , and the stock price reacts in the stock market. A decline in stock prices can distort the reflection of the value of the company's assets, and when the stock price falls to a certain level, existing or potential shareholders who observe this can take advantage of the opportunity to acquire dominant shares, and in turn, in the ? Voting by hand in order to realize the power to control the management of the company. Either new managers are replaced, new management is implemented, or a new reorganization is carried out to increase the efficiency and value of the company.
In the case of direct control by shareholders, their identity and the degree of concentration of equity is an important factor in determining the effectiveness of corporate control, if the more dispersed the equity, shareholders have no or little incentive to monitor managers. This is because the costs incurred by this behavior are all borne by themselves, while its benefits are enjoyed by everyone*** This is why the stock market is highly liquid, as it provides exit opportunities for shareholders. There are costs to be incurred in monitoring and everyone wants to free ride, thus making it difficult to exercise effective control over the operator. However, when equity is relatively concentrated, the incentive for these large shareholders to exert control is stronger. On the other hand if the shareholders' investment in the company is financed in the form of debt, which is itself highly leveraged, and the debt has a hard budget constraint, this is when the incentive for shareholders to exercise control over the business is stronger.
Capital Structure and Corporate Control: A Useful Comparative Analytical Framework
Based on the capital structure of a firm, i.e., based on the ratio of equity to debt and the degree of dispersion of equity, the form of corporate control can be categorized into two types, the first being the internal control model represented by Japan and Germany, and the second being the external control model represented by the United Kingdom and the United States. The first is the internal control model represented by Japan and Germany, and the second is the external control model represented by Britain and the United States.
1, the basic characteristics of the two modes
These two different monitoring modes of corporate governance are determined by the capital structure of the enterprise. The capital structure of the internal monitoring model represented by Japan and Germany is characterized by a high gearing ratio, and banks are the main source of corporate debt funds. Equity is relatively concentrated, legal persons hold shares in each other stably, and the bank owns a certain amount of shares, it is both a shareholder and a creditor. Therefore, in Japan and Germany, there is relatively little market surveillance and the large banking institutions play a very important role in financing and supervising companies. All relevant stakeholders have a strong say in the company's decision-making, and the mutual shareholding of legal persons also gives them an incentive to carry out direct monitoring.
The capital structure of the external monitoring model, mainly represented by the United Kingdom and the United States, is characterized by: a low debt ratio, the capital market is the main source of corporate funds; share ownership is widely dispersed; the external market, including the capital market, the entrepreneurial market, the labor market and the product market, plays an important role in the control of the company.
2. Comparison of the asset-liability structure of the two models
The bank-dominated internal control model differs from the external market-dominated external control model in terms of the debt ratio. Table 1 shows the capital structure of major developed countries.
According to the above table, it can be seen that the source of capital in the United States and the United Kingdom mainly relies on endogenous funds, i.e., on the accumulation of funds within the enterprise, while the share of exogenous funds from the financial market and from financial institutions is basically equally divided. In countries other than the United States and the United Kingdom, especially in civil law countries, the source of capital is mostly exogenous funds, and exogenous funds come mainly from financial institutions. From the comparison of the capital structure of the two different types of countries, we can see that countries such as the United States and Britain have lower gearing ratios and countries such as Japan have higher gearing ratios.
3. Comparison of Equity Structures of the Two Models
Equity structure refers to the proportion of a company's stock held by various types of shareholders. Equity structure reflects the form of ownership of the company, which in turn determines the mode and effectiveness of corporate governance. Table 2 shows the shareholding structure in several major countries.
In Japan, nearly 70% of issued shares are held by institutions and companies, of which 24% belong to non-financial companies and 44% belong to financial institutions, while at the same time, the shareholding of individuals has declined from 70% in World War II to 24%, and the shareholding of financial institutions has risen from 10% to 44%. And in the United States individual resident households are the mainstay of equity investment, accounting for about half. The point in common with Japan is that the financial sector has a larger share of equity holdings, but it is the banks that play an important role . It is not the banks, but those non-bank financial institutions that have a stable source of long-term funding, such as retirement funds, *** with the fund, etc., these funds into the stock market after the 1990s more and more share.
In a sense, the degree of concentration of equity is more important than the identity of the owner who owns it. The degree of equity concentration in Japan is significantly higher than in the United States and the United Kingdom. In the U.S., about half of the equity is held by the public, and these amounts are fairly well dispersed. In Japan, however, because the amount of public ownership is small, holdings are generally concentrated in financial institutions and parent companies that are economically linked to the company or in other companies within the same group. Mutual shareholdings between companies are prevalent in Japan, whereas they are not as prevalent in the United States.
For the U.S., with such a shareholding structure, the constraints on a company's managers come primarily from the stock market. As for Japan, due to the mutual shareholding of enterprises in the group, it not only helps to prevent the company from being merged, but also strengthens the connection between the affiliated enterprises, which helps to establish a long-term stable trading relationship and maintain a stable economic environment.
4. Further Examination of the Master Bank System
The Japanese model, which is based on internal monitoring, has the dual functions of a major shareholder and a lender, and the master bank plays a very important role in the governance structure of the enterprise. Almost every Japanese firm maintains a close relationship with a particular bank. As the main bank, it performs five major functions, i.e., providing credit, providing bond issuance services, holding shares of the company, paying the relevant accounts, providing information, and executing three major controls, i.e., pre-, mid-, and post-controls. The management mechanism of the main bank in Japan has similarities with the market discipline mechanism in the U.S. When a company's performance in the stock market, or when sales, profits, or investment returns decline, the bank will send a director to the company's board of directors, thus serving as a monitor of the company.
The role of the main bank is mainly in the following aspects:
First, to reduce the cost of financial orange paper. An important feature of the Japanese master bank system is that it provides a camera governance structure. Governance is left to the firm when it is performing well, and control is transferred to creditors when performance deteriorates. This is the keep-at-a-distance type of corporate governance model that we have already explored. In contrast to the alternative mode of governance that puts poorly performing firms into receivership, bankruptcy and reorganization through external powers, this mode of governance has creditors intervene and replace managers or reorganize firms only when necessary. That is, the main bank comes into play only when the company is in financial straits. It is different from bankruptcy and does not require a court action or a change in the legal status of the company. In this sense, master banking can overcome the high bankruptcy costs due to insolvency and also avoid the information asymmetry due to court liquidation.
Second, it reduces the cost of capital. A master-banking oriented corporate governance structure enables firms to maintain a low cost of capital. The weighted average cost of capital of a firm is determined by the cost of debt, the cost of equity, the capital structure, and the tax system. Generally, the cost of debt is lower than the cost of equity. The overall price of capital depends on the level of leverage of the firm. The international competitive advantage of Japanese companies is not unrelated to their higher debt and thus lower cost of capital than other countries.
Third, it ensures that the company is in business for the long term. The benefits of Japanese corporate governance can ensure that companies operate in the long term, because the relatively low cost of capital can promote the level of return on investment. The cost of capital is used as a discount factor for the future earnings of a project when conducting investment project evaluations. On the other hand the main bank oriented corporate governance mechanism facilitates a large exchange of information between the company and the main bank, which can reduce shareholders' uncertainty about future investment returns. The exchange of information also allows shareholders to see the value of long-term contracts signed by the company with its employees and with its suppliers. If the company has a good relationship with its staff or suppliers, it means that the company will go for some profitable investment projects, especially investment in staff training, investment in research and development will be more concerned by the company. And investment in these areas often affects the long-term development of the company.
5, the future outlook: the two convergence
Bank-led Japanese and German corporate governance mechanisms and external market-led U.S. and U.K. corporate governance mechanisms, in the past a long time, the two have a large gap, but in recent years, this gap is shrinking. Whether it is the understanding of the theoretical community, or in practice, the specific operation reflects this point.
In Japan, due to financial deregulation, resulting in increased competitiveness of the capital market, which makes the company's financing methods have undergone a major change, internal financing has become an important part of the source of corporate capital, the demand for bank capital declined. At the same time, the structural mix of bank lending has also changed, with banks shifting from mostly lending to large enterprises and manufacturing industries to lending to small and non-manufacturing enterprises.
As capital became more liquid, the cost differential between debt and equity was narrowing, and the cost advantage of high debt for Japanese companies was gradually disappearing. In particular, after the 1990s, the decline in the rate of return on capital caused a decline in the cost of equity. As a result, by 1993, the cost of debt in Japan was about the same as the cost of equity. Firms' dependence on bank financing decreased, and the share of firms' financing to banks during 1990?1994 was only half of what it had been in the past 20 years.
Theoretically, while the bank-dominated model has many advantages, its negative effects are also evident. First, the bank is both a creditor and a shareholder of the enterprise, and when the enterprise faces bankruptcy, it may collude with the enterprise to the detriment of other creditors and other security holders. Secondly, banks and enterprises, enterprises and enterprises hold each other's shares, and members of the board of directors hold concurrent positions with each other, so there is a lack of market for operators and shareholders to make an objective evaluation of various investment decisions and constraint mechanisms, and the role of the managerial market is also very limited. Furthermore, the bank is the main supplier of enterprise funds, once the enterprise is insolvent, it will cause the bank funds can not be recovered, which will increase the burden of the bank, or cause a financial crisis, affecting the development of the whole economy. It is because of the existence of these problems, the governance structure of Japanese companies in the gradual change to the Anglo-American way, to further enhance the liquidity of the stock, to improve the acquisition, mergers and acquisitions in the optimization and restructuring of the role of enterprises.
From the U.S. financing methods and shareholding structure, corporate governance is mainly dependent on the market. However, this governance structure also has a number of problems, manifested in: First, due to the extreme dispersion of equity, accounting for a negligible shareholding of small shareholders have ? free-riding? tendency, they neither care about nor have the power to influence the work of managers. Secondly, institutional investors are not real owners but institutional agents. They act as? passive investors? , are mainly concerned with how much dividends the company can pay them, rather than how well the business is run and how strong it is. Thirdly, using the stock market to discipline managers means urging them to improve their work through the level of share price and the amount of dividends, and at the same time, it may also cause operators to develop short-term behavior, that is, the pursuit of short-term profits and high dividend rates, which is not conducive to the long-term development of the enterprise.
In order to overcome the above shortcomings, in recent years, many scholars in the United States have proposed to increase the debt ratio of the enterprise, through the debt of the hard budget to constrain the behavior of the operator, to achieve the purpose of achieving effective monitoring of the operator. Debt contract is to the business operator? hard budget? , which can play the role of monitoring the operators to improve the efficiency of the company. In the case of corporate indebtedness, the operator must pay the interest and principal of the debt to the creditor on time, otherwise, he will be penalized. Under the threat of such potential losses, if the company is faced with enough debt, then the managers of the company will work to improve business operations and reduce profligate waste in order to reduce the chances of the company going into bankruptcy.
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