On the basis of an overview of general constraints perceived by SMEs in China, this paper aims at providing a comprehensive investigation into SMEs’ current financing situations of each source and their severities. Then we make a detailed analysis into the institutional factors affecting access to internal financing, the inherent reasons for banks’ icy attitudes towards SMEs and latent causes responsible for the difficulties when SMEs raising capital from equity market. At last, this paper put forward some worthwhile suggestions of improving private firms’ access to financing and policy agenda of critical changes from the perspective of enterprises, governments and financial institutions.

Every business has risks of failure. Whatever the reason might be when a business fails, the entrepreneur who runs the business will take burdens of losing financial loss and non-financial loss. There have been many studies that have analyzed and explained the reasons of business failure. However, there were few studies that handled the costs of business failure of entrepreneurs in the case of business failure. The costs that the entrepreneurs should take could be different country by country. Because of the bankruptcy treatment-system, social recognition on business failure and business or cultural tradition on business, each country has different view on failed businessmen and has different treatment-system on failed business.
Korea is notorious for having harsh treatment systems on failed businessmen. Therefore, usually even though young people who have great business potentials are hesitating starting their business because of the costs of the business failure. In Korea, at the early stage of the business usually the relative shares of the entrepreneurs in the business have been very high. In these situations when the business fails, the costs of business failure are supposed to belong to the entrepreneurs. Therefore, in Korea, once the business fails, almost always the entrepreneurs are captured with the failed business. And it is not easy for the entrepreneurs to get away form the disasters of the business failure. The entrepreneurs who were involved the failed business should take all kinds of risks and burdens of the company failure. Those burdens are not limited in monetary and economic loss but expanded to non-economic loss such as family relations, social reputation and honors.
In those situations it is very difficult for the entrepreneurs to do business or to encourage young people to start their business in Korea. Entrepreneurs who run their business in Korea always have been worrying about various kinds of failure risks and have heavy psychological burdens. Those worries and burdens can be serious pressure on entrepreneurs who run their business in Korea. For example when corporations borrow some money form a bank for the business needs, almost always the bank asks the entrepreneurs to co-sign on the loan of the corporation. If the corporation fails the business and default on the loans of the bank, the bank asks the entrepreneurs to pay the debt of the corporation. Therefore it is very tough for the entrepreneurs to start their business or to stop their business. Furthermore it is also hard for the young potential entrepreneurs to expect to start their business because of the heavy burdens of the business failure.
Another burdens of the entrepreneurs are the heavy risks of social and family relations in the case of the business failure in Korea. Even though the economy of Korea has been dramatically grown last three decades, the stigma for the business failure has not been lessened that much. Therefore most people are hesitating to recommend their close friend or family to do business in Korea because of the failure risks.
The other risks of the business failure are come form the inefficient treatment system for failed business. The markets for the failed business are not big or mature. Once a business goes wrong, it is not easy to sell the business and to get some money from the failed business. Therefore almost always the entrepreneurs who failed in the business lose more money than their failure. Also the laws and regulations for the failed business are not friendly to the failed entrepreneurs and make the failed entrepreneurs difficult to get away from it. Furthermore because of the black-record of financial institutions and the burden of the legal responsibilities of the entrepreneurs for the loan-guarantee of the corporation debt, it is no easy for the entrepreneurs to restart their business again or do something in other business sectors. The services of CPAs, lawyers or consultants are not normal in Korea and entrepreneurs recognize that the costs for the treatment of the failed business are expensive. Therefore it was necessary to review the issues related the treatment systems of failed business.
The main purpose of this paper was to figure out what kinds of the costs or risks the entrepreneurs would take when a business goes wrong and what were the main burdens of the entrepreneurs in the case of business failure. The questions in this study were composed of three sections. Independent variables were financial costs, non-financial costs, and the inefficiency costs of the bankruptcy-treatment systems. Parameter variables were related psychological stress that is related on the business failure. Dependent variables were related on the entrepreneurial intention on business. In this study, the stress is defined as negative psychological burdens or emotional burdens that could be caused by the business failure.
All the samples were collected from entrepreneurs. And sample numbers used in this research were 247. Among them 139 samples were collected from entrepreneurs who had no past failure experience and 108 samples been collected from entrepreneurs who had past failure experience. 53.4% of the respondents were more than or equal to age 46 and 41.7% of the respondents were less than or equal to age 31 to 45. Among the respondents the entrepreneurs who had employees more than 10 were 20.6%, less than 5 t0 10 were 20.7% and less than 5 or family based employees were 29.5%.
The results of the study are as follows. Among financial factors the debt from financial institutions had negative effect on entrepreneurial intention. All non-financial factors had negative effect on entrepreneurial intention. Especially non-financial factors such as social and family relations and consideration on reputation were relatively important for the entrepreneurs' stress and affect strongly on the entrepreneurial intention. Among the treatment systems of failed business the inefficient market system had negative effect on entrepreneurial intention. The entrepreneurs who had failure experience before had higher business failure stress than the entrepreneurs who had no business failure experience.
In the past government policy for entrepreneurship or entrepreneurial intention had been focused on the entrepreneurial education or financial supports. However according to the results of this study the more important factors for entrepreneurship or entrepreneurial intentions are non-financial factors such as career risks, family risks, and social reputation risks.
Therefore, to enhance entrepreneurship, government policies for entrepreneurship should be changed to find various ways of decreasing non-financial risks. By changing government policy and decreasing financial and non-financial entrepreneurial risks, entrepreneurial intention can be improved and can expect many great new entrepreneurs to dream of starting their business possibilities.

Small and medium-sized enterprises(henceforth ‘SMEs') play a very great role in a country's economy. They account for about 90% of firms in a nation and create a great number of jobs, which has a crucial economic meaning. Despite this importance, SMEs are encountering lots of difficulties in every phase of business activities such as, marketing, financing, personnel, production, etc. Among them, the financing problem may be the most important and severe one, which is mainly due to the high credit risk of SMEs in an environment of informational asymmetry. Moreover, SMEs generally lack the ability to provide sufficient physical assets for financial intermediaries as collateral. Thus, they are usually supported by the government with a specialized credit guarantee program when financing their projects. In Korea, KODIT, KIBO, and KOREG are institutions providing such credit guarantee.
This paper empirically examines the effects of government-sponsored credit guarantee program in Korea, using the annual data of SMEs for the period of 2000 through 2007. Estimating the effectiveness of the credit guarantee program is of vast importance because the program is financed by public funds. If it turns out to be ineffective unlike the initial expectation of the program, meaning that the government is wasting public funds, the program needs to be reformed to achieve the real effectiveness or abolished to be replaced by more effective financing measures for the SMEs.
Studies on the treatment effect of credit guarantee in Korea have been mainly dependent on the input-output analysis and cost-benefit analysis. Such macroeconomic approaches, however, cannot provide accurate estimates for the effects of the policy. Recently, a few researchers have begun to pay attention to the microeconomic approach such as, cross-sectional regression analysis, propensity score matching(PSM), etc.
Analyzing the treatment effect with cross-sectional data, however, cannot deal with the heterogeneity residing in each group and is subject to the endogeneity problem resulted from it. In order to avoid those problems and to more accurately estimate the effect, we employ a fixed-effects panel regression model in our analysis. In our specification, particularly, is the guarantee variable included with a one-year lagged form, which is believed to relieve above mentioned problems to a great extent.
We construct a huge data set with the help of the Korea Credit Guarantee Fund(KODIT) and Korea Enterprise Data(KED). KODIT data comprise of data on 10,411 firms having credit guarantee for 8 consecutive years, data on 9,430 firms with credit guarantee for 1 to 7 years, and data on 230 firms without credit guarantee for the whole sample period. KED data, in contrast, only comprise of data on 6,367 firms without credit guarantee for the whole sample period. In actual analyses, we winsorized variables with apparently incorrect or extraordinarily large or small values. Thus, the number of observations differs between analyses depending on which variables are included in the regression. After all, total observations on average after winsorization amount to more than 150,000, which is far greater than the data in existing studies. We believe that using a panel approach with an enormous data set increased the accuracy of the estimates greatly.
We concentrate on the profitability and the growth potential among various performance indexes for a business firm. Particularly, we use ROA, ROS(return on sales) as variables representing the profitability, and GRS(growth rate of sales), GRV(growth rate of value added) as variables representing the growth potential of enterprises. For the main explanatory variable, we use GUR, a dummy variable for the credit guarantee, assigning 1 to firms with amounts of credit guaranteed and 0 to firms without credit guaranteed as of the end of the year. In addition, variables indicating firm-specific characteristics like firm history, firm size, etc. and variables measuring diverse financial structure of a firm are included to control for their impact on the firm performance. Finally, a few of macroeconomic variables such as, the growth rate of real GDP, won-dollar exchange rate, and the growth rate of stock price are included to reflect the overall effects of economic environments.
In contrast to the initial object of the credit guarantee program, we find no evidence that it positively affects the profitability and the growth potential of SMEs. In the baseline analyses conducted with whole sample, ROA and ROS turn out to have a significant negative relationship with GUR at the 1% level in all models, indicating the provision of credit guarantee does not improve the profitability of a firm. In sub-period analyses, however, the performance indices turn out to have somewhat different results. The performance indices show higher negative coefficients with GUR in a period of large and increasing amount of guarantee than in a period of small and decreasing amount of guarantee. This may support the existing idea that one important shortcoming of the program is to allow marginal firms to survive in the industry, leading to the weak overall performance of guaranteed firms.
Even though the results reveal that the credit guarantee program in Korea is not currently working well, it does not imply that the program should be abolished soon. It is because there are no appropriate alternatives to help the SMEs finance their projects. This requires that the current credit guarantee program be reformed to meet the requirement of government authorities by raising its effectiveness in upgrading the performance of business firms. In order to draw some insights into this issue, we try to analyze the effects of size and duration of credit guarantee in case it is provided. In a sub-sample analysis where only guaranteed SMEs are included, the size of guarantee turn out to negatively affect the performance of SMEs. On the other hand, it is found that the duration of guarantee increases the firms' performance except ROA.
Meanwhile, it is possible that the same amount of guarantee may produce different outcomes when it is delivered to different type of firms. If it is correct, differentiating the size of credit guarantee according to the type of firms or focusing on a specific type of a firm should be encouraged. When we analyze the effect of guarantee program by industry type, it turns out that the effect was most prominent in the prospective service firm.
Above results lead us to a conclusion that the current system of credit guarantee does not work well, suggesting that more efforts are needed to make the program indeed effective. Regarding this, finding an optimal size of guarantee, ive provision of credit guarantee by industry type should be a good example of those efforts.
This study, as far as we know, is the first one to use the panel regression approach in analyzing the treatment effect of credit guarantee program in Korea. Accordingly, the results may have many points to be improved, and we eagerly want as many works as possible to be followed in the future.

With the advent of knowledge-based society, the revitalization of technological innovation type SMEs, termed “inno-biz” hereafter, has been globally recognized as a government policymakers' primary concern in strengthening national competitiveness, and much effort is being put into establishing polices of boosting the start-ups and innovation capability of SMEs.
Especially, in that the inno-biz enables national economy to get vitalized by widening world markets with its superior technology, and thus, taking the initiative of extremely competitive world markets, its growth and development has greater significance.
In the case of Korea, the government has been maintaining the policies since the late 1990s of stimulating the growth of SMEs as well as building various infrastructures to foster the start-ups of the SMEs such as venture businesses with high technology. In addition, since the enactment of “Innovation Promotion Law for SMEs” in 2001, the government has been accelerating the policies of prioritizing the growth and development of inno-biz.
So, for the sound growth and development of Korean inno-biz, this paper intends to offer effective management strategies for SMEs and suggest proper policies for the government, by researching into the effect of technological innovation capability and technology commercialization capability as the primary business resources on business performance in Korean SMEs in the light of market information orientation.
The research is carried out on Korean companies characterized as inno-biz. On the basis of OSLO manual and prior studies, the research categorizes their status. R&D capability, technology accumulation capability and technological innovation system are categorized into technological innovation capability; product development capability, manufacturing capability and marketing capability into technology commercialization capability; and increase in product competitiveness and merits for new technology and/or product development into business performance. Then the effect of each component on business performance is substantially analyzed. In addition, the mediation effect of technological innovation and technology commercialization capability on business performance is observed by the use of the market information orientation as a parameter. The following hypotheses are proposed.
H1：Technology innovation capability will positively influence business performance.
H1-1：R&D capability will positively influence product competitiveness.
H1-2：R&D capability will positively influence merits for new technology and/or product development into business performance.
H1-3：Technology accumulation capability will positively influence product competitiveness.
H1-4：Technology accumulation capability will positively influence merits for new technology and/or product development into business performance.
H1-5：Technological innovation system will positively influence product competitiveness.
H1-6：Technological innovation system will positively influence merits for new technology and/or product development into business performance.
H2：Technology commercializing capability will positively influence business performance.
H2-1：Product development capability will positively influence product competitiveness.
H2-2：Product development capability will positively influence merits for new technology and/or product development into business performance.
H2-3：Manufacturing capability will positively influence product competitiveness.
H2-4：Manufacturing capability will positively influence merits for new technology and/or product development into business performance.
H2-5：Marketing capability will positively influence product competitiveness.
H2-6：Marketing capability will positively influence merits for new technology and/or product development into business performance.
H3：Technology innovation capability will positively influence market information orientation.
H3-1：R&D capability will positively influence information generation.
H3-2：R&D capability will positively influence information diffusion.
H3-3：R&D capability will positively influence information response.
H3-4：Technology accumulation capability will positively influence information generation.
H3-5：Technology accumulation capability will positively influence information diffusion.
H3-6：Technology accumulation capability will positively influence information response.
H3-7：Technological innovation system will positively influence information generation.
H3-8：Technological innovation system will positively influence information diffusion.
H3-9：Technological innovation system will positively influence information response.
H4：Technology commercialization capability will positively influence market information orientation.
H4-1：Product development capability will positively influence information generation.
H4-2：Product development capability will positively influence information diffusion.
H4-3：Product development capability will positively influence information response.
H4-4：Manufacturing capability will positively influence information generation.
H4-5：Manufacturing capability will positively influence information diffusion.
H4-6：Manufacturing capability will positively influence information response.
H4-7：Marketing capability will positively influence information generation.
H4-8：Marketing capability will positively influence information diffusion.
H4-9：Marketing capability will positively influence information response.
H5：Market information orientation will positively influence business performance.
H5-1：Information generation will positively influence product competitiveness.
H5-2：Information generation will positively influence merits for new technology and/or product development into business performance.
H5-3：Information diffusion will positively influence product competitiveness.
H5-4：Information diffusion will positively influence merits for new technology and/or product development into business performance.
H5-5：Information response will positively influence product competitiveness.
H5-6：Information response will positively influence merits for new technology and/or product development into business performance.
H6：Market information orientation will mediate the relationship between technology innovation capability and business performance.
H7：Market information orientation will mediate the relationship between technology commercializing capability and business performance.

The followings are the research results：First, as for the effect of technological innovation on business performance, the technology accumulation capability and technological innovating system have a positive effect on increase in product competitiveness and merits for new technology and/or product development, while R&D capability has little effect on business performance. Second, as for the effect of technology commercialization capability on business performance, the effect of manufacturing capability is relatively greater than that of merits for new technology and/or product development. Third, the mediation effect of market information orientation is identified to exist partially in information generation, information diffusion and information response.
Judging from these results, the following analysis can be made：On Increase in product competitiveness, directly related to successful technology commercialization of technology, management capability including technological innovation system, manufacturing capability and marketing capability has a relatively strong effect. On merits for new technology and/or product development, on the other hand, capability in technological aspect including R&D capability, technology accumulation capability and product development capability has relatively strong effect. Besides, in the cast of market information orientation, the level of information diffusion within an organization plays and important role in new technology and/or product development. Also, for commercial success like increase in product competitiveness, the level of information response is primarily required.
Accordingly, the following policies are suggested：First, as the effect of technological innovation capability and technology commercialization capability on business performance differs among SMEs; in order for SMEs to secure competitiveness, the government has to establish microscopic policies for SMEs which meet their needs and characteristics. Especially, the SMEs lacking in capital and labor are required to map out management strategies of focusing their resources primarily on their strengths. And the government needs to set up policies for SMEs, not from its macro-scaled standpoint, but from the ive and concentrative one that meets the needs and characteristics of respective SMEs. Second, systematic infrastructures are urgently required which lead technological success to commercial success. Namely, as technological merits at respective SME levels do not always guarantee commercial success, the government should make and effort to build systematic infrastructures including encouragement of M&A or technology trade, systematic support for protecting intellectual property, furtherance of business incubating and industrial clusters for strengthening academic-industrial network, and revitalization of technology financing, in order to make successful commercialization from technological success. Finally, the effort to innovate technology, R&D, for example, is essential to future national competitiveness, but its result is often prolonged. So the government needs continuous concern and funding for basic science, in order to maximize technological innovation capability. Indeed the government needs to examine continuously whether technological innovation capability or technological success leads satisfactorily to commercial success in market economic system. It is because, when the transition fails, it should be left to the government.

If a job seeker can freely access to or be provided with the information about a company of interest for being employed and know some companies provide what they want or other companies do not, it would be very helpful for choosing one among job alternatives.
Even though lots of information on a specific company is available on the web or from enterprise information providers, this information mainly includes some specific contents which someone with a specific interest wants. Corporate information has been provided for several purposes in a variety of reasons. One is the information about company financial status for better and safer investment and the other may be the general overviews on company web sites for improving company image in public and etc. There is little corporate information available which is tailored to fit what a specific job seeker wants and none the less, it's hard to find any service to compare alternative companies according to any job seeker's preferences.
In reality, well-known or major companies are preferred by job seekers just because job seekers are either familiar to the name and the image of the company or exposed to the company commercial advertisements. Therefore, Small and medium enterprises (SMEs), which have potentials of significant growth in future and providing better work environments, do have few means to deliver company information to potential employees, so have difficulties in recruiting preferred human resources.
This research is driven based on two assumptions to reduce the difficulties in the matchmaking between job seekers and job opening companies. The first assumption is “If a job seeker is given to wide range information on multiple alternative companies (including SMEs having difficulties in recruiting new employees)), which is based on job seekers preference, the job seeker could make a different choice from only pursuing large-sized companies.” The second assumption is “Once a job seeker uses wide range information including wage level, work environment, some good SMEs may have competitive edge over the major companies in recruiting new employees.” Therefore, this research is concerning to suggest a company assessment model based on job seeker's major concerning factors on job ion and to apply this developed model to easing matchmaking between job seekers and job-opening companies. The company assessment based on job seeker's priorities, which uses job seeker's occupational choice factors as main considerations, differs from the one based on company brand or financial valuation which has been used for a long time by investors and entrepreneurs.
The most concerned occupational choice factors are ed from the previous research on occupational choice factors and the surveys of the channels and contents of the job seekers information sources. The chosen factors are rearranged by trimming a few factors which are too superficial or too abundant to be used for company assessment. The remaining factors are screened out once again by the domain experts.
The domain experts work to factors from the factor list and to construct four groups of factors. The four groups of the relative factors are named each as following, (1) Cooperate types and sizes, (2) Job stability and growth, (3) Working conditions and (4) Wage Level and Benefits. As a result of rearranging factors under the predefined groups, 3 level hierarchical structure composed of 4 groups, 12 factors and 32 indexes is determined as a basic assessment framework. The factor consists of type, size, stability, growth, potential, profitability, credit, vacation policy, working environments, promotion, wages, benefits, educational, and supports.
For applying the developed company assessment framework, two surveys are carried out separately. The first survey is for investigating job seeker’s priorities arranged in the 3 level hierarchical frameworks. To determine the priorities of these occupational choice factors, a thousand job-seekers data are gathered and analyzed according to the AHP(Analytic Hierarchy Process). Elements in each 3 layer of the pre-built hierarchy are evaluated by comparing them to one another two at a time. By assigning calculated priority values to the previously defined three level hierarchical model, a whole company assessment model is obtained. Basically this assessment model is composed of a hierarchical structure of occupational choice factors and each priority assigned to each element belonging to the hierarchical structure. The second survey is to gathering each company’s data corresponding to the indexes in the proposed model. To validate the developed assessment model, real company data relevant to the groups, factors and indexes in the model are gathered, verified and analyzed. A part of data especially about financial information categorized into and under “Cooperate types and sizes” and “Job Stability and Growth” groups are extracted from the commercial enterprise information providing service by KOREA ENTERPRISE DATA Co. Ltd. The other necessary data are surveyed and gathered from more than three hundred SMEs by mail and phone.
Using job seekers priorities and the company profile, each company is evaluated according to the provided assessment framework. With the results of the evaluation, companies are ranked according to job seeker's priorities and are able to be compared to other companies in each category of the suggested framework.
The evaluation results can be mainly used for recommending job-opening companies to job seekers. However, leveling up company's job-seeker attractiveness by making up for revealed weak aspects through a comparison of other competitive cannot be overlooked.
By utilizing the results of this study, several application services can be easily derived for job seekers and SMEs which need new employees. A service like screening and certifying companies for excellence in employee-favored business could be an easy application of this research. Certified companies may be preferred by new job seekers and this certification may encourage SMEs to turn to employee-favored companies. Moreover, the results of the job comparing aspect can be easily transformed to deliver highly individualized job recommendation service. Each job seeker will be easily helped to choose a job opening among the alternatives ed in generally preferred or individually customized manners.
Some factors related to the company brand easily recognized by job seekers are not included in the proposed company assessment framework. This does not mean that the brand value is not important. In fact, most other assessment model for large sized companies are based on company's financial and brand values. The proposed model is mainly targeting SMEs and most SMEs have little brand value to job seekers. So, it is not certain yet that this model is suitable to evaluate large-sized big-brand-value companies.
In the long term perspective, we hope that the Korean SMEs suffering the human resource shortage will have more chances to hire new capable employees easily and that job seekers will be given a reasonable model for evaluating job-opening alternatives.

The changes in the marketplace pose a variety of challenges for the firms. New product development (NPD) is one of the efforts to meet these challenges. With the increased turbulence in the business environment, the researchers as well as the practitioners are paying critical attention to the new product development process and the factors affecting its performance. However, NPD poses complicated challenges for the managers. Coupled with the inherent risk of the NPD project, the control problems in the organizations generate the delicate organizational dynamics. Therefore, it has become very important for managers as well as researchers to understand the critical determinants of new product success.
Both market orientation (MO) and entrepreneurship orientaion (EO) are considered significant factors that positively affect the organizational performance and new product performance as well. However, in spite of its significance, the relationship between strategic orientation (MO and EO) and new product performance has received scant academic attention.
This research attempts to focus on the role of the market orientation and the entrepreneurship orientation in the context of the small and medium-sized enterprises (SMEs). Due to the limited organizational competencies and resources of the SMEs, there is a unique challenge for the new product development. With the significance of MO and EO in the organizational performance as well as the NPD performance, the relative flexibility and the entrepreneurial significance of the SME management provide a good research context to get further into the signifcance of MO and EO.
MO is defined as an organizational culture that most effectively and efficiently creates the necessary behaviors for the creation of superior value for buyers, and thus, superior performance for the business. MOs is composed of three behavioral components of customer orientation, competitor orientation, and inter-departmental coordination. While EO is described as one that emphasizes aggressive product-market innovation, risky projects, and a proclivity to pioneer innovations that preempt the competition.
Scholars who emphasize the importance of EO argue that only market-oriented firms are likely to miss opportunities for developing innovative new products. On the contrary, scholars who emphasize on MO argue that entrepreneurial new products are likely to have higher risk of market failure.
It is asserted that firms need to strike an appropriate balance between MO and EO to make effective performance of NPD and product innovations. However, there is as yet little empirical evidence to support it. Strategic orientation, such as MO and EO, does not have a direct effect on the new product performance, but influence on the organizational culture and behaviors. Therefore, to explore the effects of MO and EO on the new product performance, we must consider the mediating variables which affect the performance of new products.

Technology-intensive and innovation-driven small and medium sized enterprises(SMEs) are the growth engine for the future economy. They, characterized by short history, financial unstability and uncertain future perspectives, are frequently facing financing difficulties which are the biggest obstacle to their sustained growth. KOSDAQ in Korea, opened on July in 1996, has been playing the pivotal role in pumping money through IPOs to financially sound SMEs, especially so-called venture firms.
For the last 13 years, as the IPO markets of KOSDAQ have been too hot, underpricing was the one of most attractive topics to finance researchers. As shown in many IPO studies worldwide, past researches show that the underpricing tend to snowball as informational asymmetry increases and as the price stabilization policies enhanced for the stronger protection of investors.
This paper introduces somewhat different view that incentive of managers with large share-holding to maximize firm value may affect the magnitude of underpricing. Founders of technology-intensive SMEs during IPOs used to remain as CEOs(managers thereafter) as well as large stockholders. The idea is that manager's shareholdings affect firm value in two different levels. As shown in

, at the zone from 0% to x1%, firm value increases as the agency cost decreases assuming that managers becomes more incentive-compatible with the remaining shareholders. But the effect will be marginally deceasing to the shareholding ratio(X-axis) and matures at X2%(Incentive Compatibility Hypothesis). But just after X2%, it jumps as the manager pay great efforts to increase firm value to maximize control premium which he/she get paid during M&A deals. In reality, managers with control may prefer to choose to sell his technology-intensive companies through M&As, when decides to exit, rather than to sell his all shares in the capital market, since the control premium can be significant(Control Premium Hypothesis). Here we assumes that X2% is around 50%. With this ideas in mind, as managers' shareholding effects on firms' value reveal after IPOs, they can be one of the driving forces to increase stock prices after IPOs. Whether the managers' shareholding is the meaningful explanatory variable for underpricing or not, and whether the effects differ by shareholding zones or not should be the empirical questions.
For the empirical tests, this paper follow 3 steps. In the first step, we structure the regression model and find statistically significant explanatory variables through repetitive multiple regressions to test whether the managers' shareholding is the meaningful explanatory variable for underpricing or not. And explanatory variables other than shareholding variable chosen at this step will be used to control underpricing effects other than shareholding at step 3 for testing whether the effects differ by shareholding zones or not(two hypotheses testing). They are some financial variables such as intangible assets/total assets ratio, R&D/sales ratio, ROA, and policy variable such as price stabilization dummy, and finally market condition variables such as the premium rate(offering price/face price ratio), the competitive rate of subscription. The regression model finally determined in this step will be used again in third step analysis.
In this step, we estimate CAR(Cumulative Abnormal Returns) of 225 corporations listed on the KOSDAQ in the period from 2004 to 2007 and find that the managers' shareholding ratios are strong explanatory variable that influence the underpricing of KOSDAQ IPO market with the statistic significance. Here we used three CARs such as CAR1 as cumulative abnormal returns at the day of IPO, CAR10 and CAR20 as cumulative abnormal returns both in ten business days and in twenty business days.
In the second step, in order to get grand view of underpricing at each shareholding zone, we divide shareholding ratio at every 5% level and then calculated CAARs at each shareholding zone. Here we used CAAR1, CAAR10, CAAR20 that averages CAR1, CAR10 and CAR20 as the proxies CAARs. As shown in and

, we can find curving points of CAAR which are roughly 30% and 50%. From the view, we might assume the Incentive Compatibility Hypothesis works, while we do have no idea on Control Premium Hypothesis.
In the third step, we used two methods of regressions. One is doing multiple regressions at each shareholding zone with divided data samples each. Other method is the piecewise non-linear regression analysis with full sample data. The first is simple and clear, but lacks of sample data. The second is complex, but adopt non-linearity as shown at

and use full data without losing the informational value. Interestingly, the common outcome was brought out despite the methodological differences. In the zone of less than 30% of large shareholders' share-holding ratio, the more large shareholders' share-holding ratio, the higher underpricing with the statistical significance. So the Incentive Compatibility Hypothesis was firmly supported. But In the section of more than 50% of large shareholders' share-holding ratio, the Control Premium Hypothesis was not proved because statistical significance was not induced in every model even though there showed tendency that the higher the underpricing increased, the more large shareholders' share-holding ratio. Regarding the non-linearity, the piecewise non-linear regression showed that the variables representing curved line turned to be negative with the statistical significance. This results are consistent to the predictionas shown at

.
In addition, this paper again describes the relationship between the level of underpricing and the share-holding ratio visually with

and

. Y-axis of these figures are fitted CAARs using regression coefficients shown at

and respectively. In calculating the fitted CAARs in each section, average values of explanatory variables except share-holding ratio had been put into the regression equations.
As shown in

and

, it is interesting to see that the results of all samples(a) and the sample of venture firms(b) are very similar to those of

, the figure of underlying theories. In

, the steep increase of the projected CAAR after 65% seems to hold on the Control Premium hypothesis, though not having the statistical meaning.
To sum, large shareholders' share-holding ratio has the positive impact on the underpricing in IPO market of KOSDAQ. And this can be largely explained by the Incentive Compatibility Hypothesis. We may attribute the reason why the Control Premium Hypothesis was not proved to the conjecture that large shareholders' incentive to increase control premium may affect stock prices in the very long term bases and thus it has little influence upon stock price just after IPOs.
Additional works on the sample of venture firms among KOSDAQ listed firms, showed similar results with all samples of KOSDAQ listed firms in every step as explained above.

The Role and Performance of Policy Loan on the SMEs in Korea：Firm-level Evidence

• - Yong Hwan Noh (Seoul Women's University)

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[Abstract]

One of the important empirical propositions associated with a conventional concave production function is the principle of diminishing marginal returns to capital, which implies that firms with relatively little capital can be able to earn higher marginal returns to capital than richer firms. In principle, poorer SMEs have higher willingness to pay for interest rates. Then our question is about why commercial banks have difficulty in serving SMEs, even firms with seemingly high future performance. Among others, the important factors are the lenders' incomplete information about SMEs and the firms' lack of collateral to offer as security to commercial banks. Commercial banks would like to charge higher interest rates for the riskier borrowers than the safer firms in order to compensate for the increased probability of default. In some cases, lending banks may ask firms to buy their financial service, insurance or to deposit. If banks are able to evaluate information on SMEs, these problems can be eliminated. However, banks face relatively higher transaction costs in serving many SMEs than serving one large transaction for large companies.
High interest rates are associated with screening SMEs, monitoring the use of loans, and enforcing repayments. This means that the adoption of new technologies are discouraged; and it would make SMEs poorer and reduce the demand for loans. As a way of breaking this vicious circle for SMEs, it is necessary to reduce transaction costs and overcome information problems. For the assistance of increasing productivity and labor demand of the prospective SMEs, thus, the policymakers have responsibility for providing funds to SMEs. Policy loans can be implemented to compensate commercial banks' losses due to high transaction costs and inherent risks. These are also used to keep borrowing rates low for SMEs. 'Small and medium Business Corporation'(SBC) in Korea is a representative non-profit, government-funded organization established to implement such government policies for the development of SMEs. Through financial programs, SBC provides financial loans for prospective SMEs that have experienced difficulties in obtaining commercial bank loans.
With policy fund, promising firms with the lack of good quality credit information can borrow needed fund at a low interest rates. Government-sponsored fund is to promote SME's facility investment, restructuring, commercialization of new technology, and other start-up activities. Narrow meaning of policy fund of SBC, which is mainly financed by issuing bond and government budget, has relatively long-term maturity (i. e. about 70 percentage of issued bond has 3-5 year expiration). Also, although it depends on the credit evaluation of the borrowing firms, the difference between commercial borrowing rates and policy fund financing interest rates is about 2% point as of 2009. About half of policy loans are direct lending by the SBC, while the last half are consigned loan through commercial banks. In the case of consigned loan, commercial banks get fees or service charges from SBC, which is about 1% of the total borrowing fund. But banks take all the risk from the lending to SMEs.
Then when can financial market intervention be justified? If markets are already functioning well, intervention won't be necessary. Thus, making justification about interventions requires the performance analysis of policy loans. In this regard, a few studies suggest evidence on impacts from policy loans in Korea. However, all of them used data associated with firms with relatively large sizes, in terms of employees, to the actual recipients of policy loans. As mentioned, in the case of holding diminishing marginal returns to capital, it is required to use proper data to overcome the underestimation of impacts of the policy loan. Also, with the launching of Korea Finance Corporation in October 2009, which is a policy-based finance institution that also supports SMEs with high growth potential by providing indirect financing (which is so called on-lending scheme) through intermediary lending institutions, there would be duplicate supports for the SMEs and hence the possibility of creating inefficiency in SME financial policy.
In this paper, using firm-level data, we empirically analyze the outcomes of SMEs investment associated with policy loan. We concern whether the loans made firms profitable-or do recipients simply have easier access to commercial credit without policy loans. In our empirical model, we very take care of outlier problems of the small firms' business statistics as well as minimizing the ion bias. We performs an initial screening based on Cook's distance (> 1) to eliminate gross outlier before calculating starting values. Then we do Huber-type robust estimation. First, we find that, other things being equal, policy-loan program has significantly positive profit-enhancing effects on SMEs for the short-term period after the program applied. The magnitude of that effect on firm profitability is greater for the direct financing than the indirect financing through commercial banks. The positive profit-enhancing effect is also stronger for the start-up companies and SMEs in their early stages rather than old SMEs. Second, empirical finding shows that policy loan has significantly positive effect on the growth rate of sales. In this case, on average, the positive effect of policy loan on the growth rates of sales is greater for the consigned loan than the direct lending. However, the magnitude of effect on the growth rate of sales is greater for the loans associated with venture firms in their start-up and early growth stages and with the commercialization of intellectual property and R&D results. Third, the effect of financial accessibility of the recipients to the commercial credit without policy loans has not been found in our financial data.
SME financing is essentially about providing loans. Our results imply that, when providing policy loans, it is more desirable to target the prospective young SMEs rather than matured firms. In particular, for the policy loans associated with financing for venture firms in their start-up and early growth stages and for the commercialization of intellectual property and R&D results, it is more desirable to provide financial support by the direct lending via SBC rather than by consigned loans through commercial banks. In the period of low interest rates, however, the effect of policy loan is relatively diminished. Recognizing that SBC provides both financial and non-financial programs for SMEs, with accumulated non-financial experience including consulting, training, and marketing to strengthen the competitiveness of SMEs, it is desirable for SBC to provide tailored solutions to SMEs based on detailed management analysis. This also can be means to support SMEs while differentiating from Korea Finance Corporation's on-lending business model as means to support SMEs.

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