| A small-and medium-sized enterprise (SMEs) refers to a company falling under a certain set criteria on its main field of business, number of full-time employees, and capital or sales amount. Any of the following cases, however, are excluded from the definition. Also excluded are enterprises with the number of full-time employees exceeding1000, with the total assets amount of KRW500billion or over, with the equity capital of RKW100billion or over and with the average sales amount of the previous3business years being KRW150billion or higher.Smaller enterprises are relatively more vulnerable than large companies in their capital and management aspects. As their risk of capital use is higher than larger companies’, SMEs are often required to pay a higher security provision or alienated from proper financial services in the first place. And if not, they have to face higher cost of capital, or interest rates for funds due to their higher cost of risk. These work as an entry barrier to SMEs while discouraging their technological development and profit growth, causing fundamental imbalance of SME growth. This is true especially in regions as South Korea where a capital market development has been delayed and the demand for capital has been excessive throughout the20th century. Therefore, such regions need proper SME financial assistant measures in order for efficient resource distribution, employment increase, technological innovation and long-term sustainable and inclusive economic growth and stability. At the end of the20th century, in particular, in step with the dynamic trend of liberalization, such demand for financial assistance for these relatively marginalized SMEs started to surge.SMEs performance in the national economy has changed as followsThe share of SMEs in the national economy has expanded continuously to reach99/9%of the whole number of businesses in the country, and87.7%of the total number of employees. After South Korea’s1998financial crisis, in particular, during the next decade, larger companies pursued restructuring to continue to reduce employment whereas SMEs generated jobs actively, contributing to revitalizing the national economy. SMEs are expected to enjoy more achievement given the philosophy of the current administration that emphasizes a creative economy and subsequent administration which will keep nurturing innovative SMEs or venture companies.South Korean regulations on SMEs base on Constituent (Article123(3) and (5)) and are structured in a total of16sets of regulations including the Framework Act on Small and Medium Enterprises and15individual execution rules with a view to reinforcing systems and assistance.Market involves dynamic multiple economic players. Of them, the role of enterprises is essential for a national economy. However countries where SMEs account for a considerably larger part frequently experience market failures, especially in terms of finance. This is where the validity for national financial assistance to SMEs started to grow-a market failure. Market failures occur because reverse selection and moral hazard-led information asymmetry. And information asymmetry takes place for the following two reasons and sometimes it is complemented.Due to such a market failure, SMEs’ bank access becomes more difficult. Credit allocation also plays a big part. That is, information asymmetry causes credit allocation in the loan market to generate excessive demand for fund, troubling SMEs or individuals’efforts to fundraise. I n other words, interest rate equilibrium is not naturally achieved at the point where the demand for fund and supply meet in the loan market but at a lower level than that to incur excessive demand for fund based on credit allocation. Credit allocation is a phenomenon caused by the rigidity of loan interest rate. As a result of such credit allocation, SMEs and households may face decreasing amount of loan. SMEs may be affected in their capital management or investment. Most of previous literatures on limited fundraising base on Tobin’s Q theory model to explain factors to determine a corporate investment decision. They focused on analyzing the sensitivity of cash flow to investment. These researches have adopted the idea of agency cost or corporate insolvency cost to Tobin’s Q investment model and examined720UK manufacturing companies. They found that larger-sized companies, compared to smaller firms, tended to expose more to liquidity limitation. With a stronger liquidity limitation, investment will become reduced. With reduced investment, national economy itself will become smaller. In this sense, SME assistance is essential.Financial aid for SMEs is separated into diverse systems such as those to expand SMEs’ disposable capital supply and to enhance their security capacity and credibility. Widely-known measures to expand disposable SME capital include obligatory loan for SME and the Bank of Korea’s SME loan program under a certain total capital cap. The obligatory SME loan program has been in place since April1965until now. It is a system to lend to SMEs a certain amount of fund proportionate to each financial institution’s loan increase. As for many commercial banks, their obligatory ratio has been set at30%in1965,35%in1980, and45%in1992respectively. Regional banks have set it at30%in1965,40%in1976,55%in1980,80%in1986,70%in1994and60%since1997until now. Domestic banks’ loan to SMEs fell after2002until it started to rebound in2006. Commercial banks set the SME obligatory rate at45%. Their SME loan of the loan in Korean won decreased from37.8%in2003to35.6% in2006, then moved up to39.6%in2007and has stayed around the level so far.As a result of empirical research of banks, if ROA and ROE are used, the two models showed similar outcomes. ROA and ROA were found to have influence over SME loan around a5%significance level. When ROA or ROE rises, SME loan tended to go up together. SME loan was found to decrease by approximately0.6%-0.7%for every1%increase of BIS capital adequacy ratio. As BIS capital adequacy ratio is a kind of risk variables in a sense, the higher the ratio, the more reluctant banks go regarding SME loaning. Sound banks tend to invest in a safer place than smaller firms with high risks. Bank asset-an absolute size variable-was found not to affect SME loan amount. Whereas the relative size variable of, for instance, a bank I’s tth year total asset/the year’s average total bank asset size was found to have a significant effect. This means the higher portion a bank occupies in the total asset, the more SME loan is decreased. GDP coefficient represented a significant negative number, signaling that SME loan decreased despite GDP growth. This can be interpreted that, in economic booms, banks tend not to lend more to SMEs and take more risks, rather they cut it and move more towards safer loan programs. Lastly, banks can be classified according to their purposes. The dummy used in this study put commercial banks at0. It was found that regional banks, rather than commercial banks, increased SME loan by approximately21%and special banks, than commercial banks, enhanced it by6.5%. In terms of financial assistance policy, the government has financially supported SMEs since the1980s for SME competitiveness improvement together with financial guarantee. SME assistance fund under policy is to nurture smaller firms having good business feasibility and technologies to create more jobs and added values ultimately for the policy goal of national economic growth. Policy fund is supported by the Small and Medium Business Administration and its relevant agencies.Now let’s look at credit guarantee policies. Credit guarantee system has long been used in the US, Japan, Germany, and many other advanced countries as a financial aid policy for SMEs. South Korea is also not an exception. Korea’s credit guarantee system is structured in the Korea Credit Guarantee Fund (KODIT), Korea Technology Finance Corporation (KIBO), regional credit guarantee foundations, etc. KODIT has supported mainly general SMEs and start-ups, KIBO has assisted innovative businesses for their technology assessment guarantee. Regional credit guarantee foundations have worked hard to financially help small local firms and micro-business operators. These institutions have also generated considerably high economic benefits.Central government provides both direct and indirect tax benefits as followsIn addition, local governments and others also participate. The Export and Import Bank of Korea and Korea Trade Insurance Corporation also provide assistance to import and export.These policy assistances were empirically analyzed to come to the following outcomes. In consideration of labor, capital and policy assistance against gross production, this study examined data from520companies (in the6th year), and821companies (in the3rd year) and estimated a production function. According to the least square method, the6th-year companies showed the sum of labor, capital and policy finance coefficients larger than1in the fields of machinery, textile, shipbuilding/steel, and chemical while the3rd-year firms showed it larger in automobile, shipbuilding/steel and chemical sectors, signaling increasing return against size. Fixed-effects model and stochastic effects model found out that the6th-year group had coefficient sum exceeding1only in the textile sector while the3rd-year group gave it larger than1in the machinery and chemical sectors, indicating also increasing return against size. Therefore policy assistance is expected effective in these industries.In this study, we estimated effects of policy assistance outside the corresponding industries towards other industries or even across the entire economy and tried to estimate if policy assistance to an industry where an innovative enterprise belongs may have improved productivity or efficiency in other parts or the economy or across the whole economy. To understand its ripple effects, we can use the industry association table but SME data do not exist. Therefore, if technological advancement is realized in an intermediary material, its ripple effect throughout other industries excluding the corresponding sector can be analyzed. The least square method uncovered that intermediary materials affected relatively stronger in shipbuilding and steel. In the6th-year group, the fixed-effects model identified machines are highly affected by intermediary goods, demonstrating larger effects from other industries. In case of policy assistance, the6th-year group showed significant outcomes in the entire industry, automobile and chemical part when measured by the least square method and only machine was found to be significant under the fixed-effects model. Therefore, if policy financial aid is provided to these industries, they can create added values. The3rd-year panel displayed significance in all of the entire industry, semiconductor/electronic, shipbuilding/steel, chemistry and other manufacturing segments. Abstract: |
