1,2
1 School of Management, Hebei University of Technology ， Tianjin ， 300401,China
2 The People’s Bank of China Shijiazhuang Central Sub-branch,Shijiazhuang,050000,China
(weihappy2000@163.com)
Abstract -We use the small and medium-sized enterprises data of Hebei province to analyze the correlation can’t share the success which independent innovation reaches. So they are more concerned with the probability of the independent innovation and equity finance. The result shows that a higher equity ratio is conductive to a higher of failure when calculating the loan. Furthermore, R&D items often don’t include assets that will be used as
R&D intensity. Equity may be more important for young companies which have to rely on original equity investment collateral. The costs of the independent innovation persons take an important part in the R&D payout. R&D of their owners since they have not yet accumulated retained earnings and can rely less on bank financing. activity therefore needs collateral.
Younger enterprises have age problems with get bank loans. The banks will make use of relationship
Keywords - Equity finance, independent innovation, small and medium-sized enterprises lending to mitigate problems of asymmetric information to make good decision. Since young enterprises start without such a record, banks will be not pleasure to offer them loans. Fritsch document the probabilities for going
I.
INSTRUCTION out of business for German companies, finding a decrease in the probability of exit with firm age. After ten years
The innovative activity of enterprises is a driving only 46 percent of the companies are still in business and force for economic growth. Consumers benefit from a about 37 percent of the start-ups in services. There are greater choice of goods and services, and enterprises several possible reasons for the higher exit rates of young benefit from the creation of another markets and making a companies, such as inexperienced management, unfixed profit chances. At the macroeconomic level, independent customer and matters making the product in the market. innovations accelerate structural adjustment to make new
Venture capital is the “smart capital” with the viable parts and play a important part for the creation of company in choosing the projects, which in a certain jobs posts. Although large enterprises spend a high share extent enhance the possibility of project. This of the total R&D expenditure, small and medium-sized characteristic combined with participation in the upside companies are also important partners in the innovation potential of project in the upside potential of project process. In recent years, companies pay more and more makes venture capital more suitable for the financing of attention to independent innovation .The purpose of this
R&D than bank loans. The share of venture capital paper is to provide an analysis of the equity capital financing is very limited. Venture capitalists don’t like to available affects their R&D activity. finance technology based companies at the initial stage.
Murray and Lott find that the UK venture capitalists setup
II. Theoretical Background more strict criteria for technology projects than nontechnology projects [2] . In addition, Scott finds that owners are unwilling to losing control of venture
Companies can choose between several broad types capitalists. Even in the countries which have a well of financing: internal financing, external debt and external equity. It is difficult to get money from extern financing developed venture capital market, some owners will find the cost of using this financing is too high [3] . It can be to R&D project. One is the high uncertainty of the acknowledge additional owners to the company too. This innovation project. The other is that the quality of the route of financing also means that existing owners will project which need not only the technology information lose part of their control. In this paper we consider in the but also the detail of the R&D is secret which will give
R&D enterprise ,external debt play a most important part birth to asymmetry to the investors. in the debt, particulate to the developing enterprise,
Evidence from many countries shows that the small because they have no chance to subsistence income. The and medium-sized enterprise rely mostly on internal empirical analyze mainly research the correlation of the financing. If they seek external financing, they preferred equity finance and independent innovation. The result bank loans. Less than 1% of the investigated companies are found by Ou and Haynes [1] . The peculiar shows that a higher equity ratio is conductive to a higher
R&D intensity. characteristics of R&D projects make debt financing in
The small and medium-size technology enterprise is specially difficulty. Banks get the interest rate and they one developed based on a originally technology. In Stat
1

we usually use the R&D expense account for sell to define it. The high science and technology is the R&D expense account for sell mainly 7 percent. The figure of prep high science and technology is 2% to 5%.In
American the science and technology enterprise is defined innovation enterprise. The science and technology ministry and the finance ministry define the high science and technology in the science and technology enterprise fund regulate is that the employee is not more than 500, the employee who have school experience above acad. is not less than 30 percent. The employee who research straight occupy 30 percent of the total .And the R&D expense in every year is not less than 3 percent of the sale. Enterprise in this paper is what we say above.
II.
Related Literature
This paper focuses on the influence of the financial on the R&D activity. The authors restrict their sample to companies with minimum positive R&D expenditure and do not use facilities to establish the direction of consequence. And the sample doesn’t include companies without R&D and without continuous R&D activity.
Bhagat and Welch (1995) do that they compare the influence of leverage on R&D intensity across countries for listed enterprises using a VAR approach [4] .Jordan
(1998) find that companies with an innovation strategy have lower leverage. And companies with a higher capital intensity have higher leverage [5] .Bah and Dumontier
(2001) find lower leverage for R&D intensive enterprises in the USA,UK,Japan and countries in Europe [6] . Chiao
(2002) finds a negative effect of debt on R&D intensity in science-based industries and a positive influence for companies in nonscience-based industries [7] . Cassar
(2004) finds that the share of capital assets has a positive relationship with long-term leverage [8] . Czarnitzki and
Kraft (2004) recognize a negative relation between leverage and innovation output measured by patents [9] .
Aghion et al. (2004) find higher leverage for companies with R&D activity and that leverage decreases with increasing R&D intensity [10] . Hyytinen and Pajarinen
(2005) research the determinants of leverage for small, unlisted companies [11] . In contrast, Mac An Bhaird and
Lucey (2006) find that their is no relationship between
R&D intensity and short- and long-term leverage for Irish small and medium size enterprises [12] .
The influence of financial constraints on the investment behaviour of companies also exists. For the
US, a positive and significant relationship between R&D expenditures and cash-flow is found (Himmelberg and
Petersen (1994) and Hall (1992)) [13] . Egeln et al. (1997) find an inverse U-shaped relationship between company age and whether financial restrictions are important obstacles to innovation activities of German companies.
The restrictions are most important for companies at the age of 5-10 years [14] . Bond et al. (2007) find no influence of cash flow on R&D expenditures of German companies, whereas cash flow influences whether UK companies perform R&D. There are therefore differences between companies in bank-based and market-based systems [15] .
The literature in China is mainly on the finance support to the independent innovation of small and medium-size, VC invest mode, second market development etc. And there is no research on the equity and independent innovation. This paper will focus on the correlation of the equity finance and independent innovation which have important meaning to how the finance structure supports independent innovation.
III.
Data and variable enactment
This paper research the small and medium-size R&D enterprises 2010 in Hebei province. We take in account scale, structure, financial state in Data enactment .The factor which impact R&D is plenty. We use R&D intensity as the dependent variables, use the equity ratio, the cost of capital, number of employee, company age, industry factor as explanatory variable which can be see in table 1.We use logistic regression manner to analysis .
TABLE I VARIABLE DEFINE
Variable Variable symbol
Variable explain
R&D intensity
Cost capital of
Number of employee
RDI
Equity ratio ER
R&D expense account for sale
Data of 2010
COC Data of 2010
NOE
Six group ： =1 ，＜ 9 ； =2 ， 10-19 ；
=3 ， 20-49 ； =4 ， 50-99 ； =5 ，＞ 100
Company age
Industry factor
CA
=0 ， less than 8 years
=1 ， more than 8 years
IF
=1 ， manufacturing industry ； =2 ， merchant industry ； =3 ， service industry ； =4 ， architecture industry
We construct a logistic regression and use SPSS to analysis how these factors affect R&D. The model is as follow:
RDI =c+a 1 ER +a 2 COC +a 3 NOE + a 4 CA + a 5 IF +ε
VI. Descriptive Statistics
In order to understand the finance of small and medium-size enterprise we research whether or not there is difference in structure between innovation and nontechnology innovation. The descriptive statistics are provided in Table 2.A notable difference is that independent innovation enterprises have more advantage
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in scale. For example the average of number in independent innovation is nearly twice of none independent innovation. And the total assets are more.
The difference in the company can be ignored.
TABLE 2 THE CONTRAST BETWEEN INDEPENDENT
INNOVATION AND NON INDEPENDENT INNOVATION
Mean Median
Variable
Equity ratio
（
%
）
Company scale(thousand yuan)
Equity capital(thousand yuan)
Number of employees
Company ages(year)
R&D
22.8
8045
2085
59
32.2
1026
No
R&
D
20.3
5985
1221
31.7
31.5
536
Sig.lev. differenc e
<1
%***
<1
%***
<1
%***
<1
%***
%
73
<1
%***
R&D
18
3100
423
35
13
235
No
R&D
13
1450
168
15
13
100
Equity per owner(thousand yuan)
Number of owners
1.96 1.69 <1
%***
2 1
The difference between R&D and non R&D company is very obvious. R&D is inclined to equity capital. We can find the equity ratio is 2.5 percent more than non R&D. And they are significant at the 1% level.
The equity capital of R&D is obviously higher than non
R&D. The equity per owner is 10.26 million and non
R&D is 5.36 million. In order to keep the abundance of capital, company will get money from shareholder. Equity per owner and number of owners are significant at the 1% level.
Table 3 shows the descriptive statistics of variables.
T ABLE 3 D ESCRIPTIVE STATISTICS
Variable Minimum Maximum Median Mean
Std.
Dev.
Equity ratio （ % ）
Cost of capital
（ % ）
Number of employee
Company ages
1
2.1
5
0
100
15.6
948
1
15
9.4
35
0
20.9
7.9
59
0.36
21.1
1.53
82
0.51
Industry 1 4 2
1.8
1.17
R&D intensity
（ % ）
0.53 70 5.6
2.82
7.58
From table 3 the equity ratio mean is 20.9 percent.
The mean number of employee is 59.The mean company ages is 0.36.And Std dev is 0.51.Because we use the dummy variable we find small and medium-size enterprise is in the developing time. The mean industry is
1.8,std dev is 1.17.There are 26 percent company engage in R&D,31 percent manufacturing industry,28 percent merchant industry,23 percent service industry,18 percent architecture industry. The mean R&D intensity is 2.82 and std dev is 7.58. We can find the R&D intensity is low, and the difference between the R&D enterprise and non R&D is big.
VII. The correlation analysis
We use person manner to analyze the correlation between the variables. Table 4 shows the result.
ER
T ABLE 4 T HE RESULT OF THE CORRELATION OF VARIABLES
Variable
E
R
Pearson
Correlation
1
Sig.(2-tai led)
48
N
7
CO
C
0.0
21
0.2
60
NO
E
0.0
22
0.0
59
CA IF
0.1
31
0.2
32
0.31
5
0.08
7
RDI
0.3
16
0.0
89
487 487 487 487 487
CO
C
PearsonC orrelation
Sig.(2-tailed)
N
1
0.2
51
0.3
62
0.1
39
0.2
47
0.27
9
0.18
4
0.1
52
0.2
53
487 487 487 487 487
NO
E
CA
IF
PearsonCorrel ation
Sig.(2-tailed)
N
PearsonCorrel ation
Sig.(2-tailed)
N
PearsonCorrel ation
Sig.(2-tailed)
N
1
0.01
1
0.6
07
-0.1
37
0.22
1
0.0
19
0.3
24
487 487 487 487
1
0.16
5
0.11
5
0.1
02
0.0
47
487 487 487
1
0.1
90
0.3
54
487 487
RD
I
PearsonCorrel ation
Sig.(2-tailed)
N
1
487
*Correlation is significant at the 0.05 level (2-tailed).
** Correlation is significant at the 0.01 level (2-tailed).
The correlation between ER and RDI is 0.316, and the significant level is 0.089 which we can find strong positive correlation. Most of small and medium-size enterprise is in the developing time. The sale goes up quickly, and the R&D investment goes up too. So the RDI rises. The correlation between COC and RDI is 0.152, and the significant level is 0.253 which we can find the weak correlation. Maybe now, the COC is not the determine cause. The correlation value between NOE and
RDI is 0.019, and the significant level is 0.324 which we can find weak correlation between NOE and RDI. The person increment can’t promote the R&D. The correlation between CA and RDI is 0.102, and the significant level is
0.047 in which we can find strong positive correlation.
The company age’s increment promotes it increase it’s capital which will have more capital to spend in R&D.
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The correlation between IF and RDI is 0.190 and the significant level is 0.354 which prove the influence of IF to RDI is very weak.
use
VIII. Regress analysis
TABLE 5 MODEL PARAMETER
Mode l
RDI
R
0.79
2
R-square d
0.627
Adjusted
R-square d
0.613
Std.
Error
0.08
5
F value
58.12
4
The marked probabilit y of F
0.00
0
The R-correlation value is 0.792 which shows that the factors we choose have strong relation with
R&D.R-squared is 0.627, which shows regress equation can explain the crucial R&D expenditure factor from the factor we choose. F value is 58.124, and the marked probability of F is 0.000, which shows regress equation past the test the significant level at 0.01.
Table 6 Regress coefficient and the marketed test result
Constant
ER
COC
NOE
CA
IF
Variable Coefficient
-0.007
0.351
0.009
-0.530
-0.634
0.624
Std.
Error
0.115
0.030
0.032
0.007
0.051
0.049 t-Statistic
-0.063
1.164
0.324
1.693
2.285
1.884
Sig
0.000
0.000
0.131
0.003
0.001
0.025
Table 6 shows the Sig. t value of ER is 0.000, which shows that ER have obvious difference with 0.It shows the equity capital have influence on RDI. The Sig. t value of COC is 0.131 which shows that COC don’t have difference with 0.It shows that COC don’t have obvious difference with RDI. The Sig. t value of NOE is 0.003 which shows it have obvious difference with 0.It shows the more business enterprise number, the more technique innovation activity. And the rate of large-scale enterprise carry on technique innovation is higher, while the R&D intensity is smaller, maybe because the small and medium size enterprise is in the growth process. The income gets significant growth. The technique innovation expenditure of growth fails to catch up with income growth. The Sig. t value of CA is 0.001 which shows it have obvious difference with 0. And equity ratio has little influence to management time. But to younger enterprise the influence is obvious. Although the small and medium size enterprise has get income wealth, its technique innovation intension will not be strengthened.
Regress result shows if the enterprise has ample funds to assure technique innovation success, governors are more incline to carry on a technique innovation items.
For higher R&D enterprise, equity capital may is more importance. So compare to other management item technique innovation will face the higher risk. And it is more difficult to acquire an exterior funds support. If technique innovation have the smaller weight in the business, the enterprise never need to keep the higher equity ratio for R&D to provide funds. Enterprise which want to obtain loan, its whole risk level should reach at the bank accept level or provide for enough guarantee to reduce bank risk.
For younger enterprise the influence of the equity ratio upon the management time is bigger than the longer enterprise. The main reason is the longer enterprise has already get income accumulation in the management.
Their funds are more abundant, while the younger enterprise didn't yet experience the originality and it can only depend on proprietor investment. The longer business enterprise can provide some guarantee. They can acquire a parts of technique innovation funds from bank.
The younger business enterprise can hardly acquire a technique through exterior margin innovation funds, while they mostly depend on themselves. But our analysis didn't show whether business enterprise will be been limited by equity capital. If the investor can't continue increase investment because the funds are limited, the enterprise may lead to obtain equity capital from the exterior investor. But it is difficult to find a enterprise which would like to invest the risk enterprise and accord with investor condition or a person. Even they can obtain an exterior ownership of share. Because they may lose enterprise part control power, the current proprietor may not adopt this kind of way.
IX. Conclusion
In this paper we study the relationship between the capital structure of small and medium size enterprises and their R&D activities. We find positive related relation between equity ratio and technique innovation intensity.
And this influence for younger enterprise is more obvious. The more the equity ratio is higher the more
R&D intensity is stronger. Only the owners make sure to own enough of the funds to support R&D activity and obtain success. They probably would carry on the technique innovation. For the younger enterprises, they have no accumulation to subsist income, and don’t depend on a bank loan. But they only can depend on proprietor originality capital. The enterprises’ needs of technique innovation funds are small which don’t usually engage in technique innovation. There is no need to keep a higher ownership of a share margin level. But for technique innovation enterprise whose RDI is bigger such as high technology enterprise, the technique innovation item bank loan is difficult. The equity capital need is big, so these enterprises depend more on environment what is more easy to obtain exterior capital.
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