Analysis on the Influence of GEM on the Financing of Innovative Enterprises
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Abstract. As China proposed the implementation of independent innovation strategy for its "Eleventh Five-Year Plan"， the construction of innovative companies was officially started. Since then， many innovative enterprises have been identified， evaluated and named in succession. Today， Financing is the major problem confronting innovative companies. Based on this， this paper combines the characteristics of innovative enterprises and GEM （growth enterprise market）， and then analyses in details the risks and opportunities of financing GEM has brought. At last， this paper offers some referential suggestions on making full use of GEM for innovative enterprises’ financing.
Key words： GEM； Innovative Corporation； Financing
Along with the rapid development of economy and the breakthrough of science and technology， innovative enterprises have grown into one of the main forces in the construction of the innovation-oriented countries.
However， the difficulties of financing are the biggest problems， which have imposes the obstacles on the development of the innovative enterprises for a very long time. In this paper， according to the background of the GEM （growth enterprise market）， the influence of GEM on the financing of the innovative enterprises is discussed by the authors.
Introduction to Growth Enterprise Market
It is a practice for the developed countries to make an improvement to their capital markets and provide supports to the financing development of the innovative enterprises by setting up GEM （growth enterprise market） and promoting the direct financing of the small and medium-sized enterprises.
First， the listed objects at growth enterprise market are special. Generally speaking， it has the three characteristics as follows. Growth enterprise market stresses that it is necessary for enterprises to have specific main development bodies， business performances， sound development plans and implementation steps， considerable development prospects， and growth spaces.
Second， the standards to be listed at growth enterprise market are low. The requirements of growth enterprise market on the subject qualification， equities， profitability and pro-phase records of the listed companies are lower than that of main board market in general.
Third， the supervision and administration at growth enterprise market are stricter. Generally speaking， it is necessary for the listed companies at growth enterprise market to make a more detailed， sufficient and timely disclosure to their information. In the mean time， a stricter de-listing system is implemented for the listed companies at growth enterprise market.
In October 2009， growth enterprise market was opened in Shenzhen， China. There is a great difference between growth enterprise market and main board market in standard for listing， supervision and administration system， information disclosure， trader conditions， and investment risks， etc.
Introduction to Innovative Enterprises
Definition of Innovative Enterprises. Along with the prosperity of both knowledge-based economy and IT industry， the innovation-oriented enterprises rise in all countries continuously. However， there has not been a consistence in the definition of the innovative enterprises in the academic community yet.
From 2006 to 2011， the Ministry of Science and Technology， the state-owned Assets Supervision and Administration Commission， and the National Federation of Trade Unions selected 550 enterprises as the innovative pilot enterprises one after another.
After a period of pilot and training， these innovative （pilot） enterprises made a further progress in innovation consciousness， innovation ability， and innovative performance， economic strength， etc. In the mean time， the pilot enterprises played an increasingly more important role in making an enhancement to the national independent innovation ability and driving the national economy to attain a good and rapid development.
Characteristics of Innovative Enterprises. Generally speaking， it is necessary for the innovative enterprises to have four characteristics.
First， it is necessary for them to have the continuous innovation ability. Innovative enterprise should place high investment on research and development， have their own sound research and development institutions， or establish a cooperation relationship with both foreign and domestic universities and scientific research institutions for a long term. At the same time， they should possess a powerful development potential in the leading technology fields， and also attach importance to the cultivation， attraction and application of the science and technology personnel and high-tech talents.
Second， it is necessary for them to establish an innovation system. Innovative enterprises should be positive and initiative in innovation in the management process， and also should establish a sound innovation mechanism for the purpose of ensuring the orderly and effective development of the innovation activities.
Third， it is necessary for them to drive other enterprises to develop in the industry and have their own brands. The ability to drive other enterprise to develop means that innovative enterprises must possess a powerful power or potential to drive the industrial development， and they can exert a very important influence on the industrial development and technological progress.
Fourth， it is necessary for them to have the innovative cultures. Generally， innovative enterprises should be strong in innovation consciousness and innovation culture.
analysis of the Current Financing Situation of Innovative Enterprises
There are two financing methods for enterprises： one is the direct financing， and the other is indirect financing. Innovative enterprises in China also encounter a series of difficulties in the financing process.
Direct Financing. In equity financing， the conditions stipulated by Chinese main board market for enterprises to issue stocks are harsh. Therefore， the possibility of the innovative enterprises to finance from the small and medium-sized enterprises is small relying on main board market.
In bond financing， the innovative enterprises are difficult to finance issuing bonds actually， because of the strict control on bond issuing conditions and scales.
In addition， the income tax collection implemented by the state on bond interests of enterprises also affects the enthusiasm of investors. Furthermore， risk investment developed very late in China.
Indirect Financing. In China， the traditional financial institutions keep very cautious on the financing of this area owing to a series of factors， such as poor management environment of innovative enterprises， unreasonable enterprise property right systems， backward management concepts and methods， poor technology innovation ability， and low credit. Therefore， the capital that innovative enterprises receive is very limited.
Comparative Analysis with Western Developed Countries. In comparison with the western developed countries， China still has great differences in the financing of enterprises： （1） the difference in the financing structure； （2） the difference in the financing mechanism.
influence of Growth Enterprise Market on the Financing of Innovative Enterprises
Financing Chance. A large amount of capital investment is needed generally by the innovative enterprises in both early stage and growth stage. In this period， the ability of innovative enterprises to make profits is still unclear， giving rise to the deadlock of high investment and low output. This will drastically make a reduction to the chances of the enterprises to finance externally.
Now， the financing channels of the small and middle-sized enterprises are enriched with the establishment of growth enterprise market， providing new chances for the growth and high-tech innovative enterprises to be listed， as shown in table 1.
Table 1： Comparison in gem Two-year Development
Within two years， among the 272 companies listed in growth enterprise market， 180 were from manufacturing industry， taking up 66.42%， and only 53 were from innovative and high technology areas， taking up 19.56%. The total financing from IPO （initial publish offerings） of growth enterprises reached 190.3 billion RMB， in which 126.7 billion was exceeded， namely 462 million was financed excessively by each company and the average excessive financing rate reached 181.18%. Growth enterprise market has made the ascent of China’s capital market， because it is benefited from serving for high-tech enterprises and gives favorable publicity to the training of "Microsoft" made in China. The development result of the growth enterprise market in two years shows that the growth enterprise market in China can really bring about the huge financing chances for enterprises.
Besides， through the liquidity of the stock primary market， the conversion of transformation of investment period was realized， in which the short-term capital source of investors to enter stock market was converted to long-term investment of listed companies， thus ensuring a sufficient long-term capital supply.
Then， through the stock price transfer mechanism of the companies， the process of the companies from start-up to maturity was accelerated， and also capital was applied with high efficiency.
Financing Risks. All kinds of risks can be encountered by innovative enterprises in the process of growth enterprise market open to the public.
First， there is management risk. Innovative enterprises are in the primary stage in market development in the beginning of being listed in growth enterprise market， and also have great numbers of uncertain factors in technological conversion. Hence， it is easy for the business performance and profit-making ability of innovative enterprises to rise and fall in this period.
Second， there is fluidity risk. According to the experience of other countries， the transactions are generally active and large in the early days of growth enterprise market due to some factors such as opportunistic behavior. However， as time goes by， the transactions at the market may be weak and unsmooth in fluidity gradually.
Third， there is stock price fluctuation risk. In the main board market of China， the speculative phenomena such as market maker， insider trading， and rising and falling suddenly and sharply are in existence for a long time. The listed companies at growth enterprise market have small capital stock scales； their market values are difficult to be estimated； the stock price rising and falling amount is restricted widely. Therefore， it is easier for opportunistic behaviors to prevail.
Fourth， there is de-listing risk. Generally， innovative enterprises， which have been listed at growth enterprise market， are face with higher management risk and uncertain business performance， making them unable to keep the listing conditions. Therefore， the possibility for the enterprises to be de-listed is also higher.
Strategies for Innovative Enterprises to Finance Using Growth Enterprise Market
Strengthening Innovation Ability. The main purpose of the establishment of growth enterprise market is to encourage and guide the social investments and also provide a financing platform for high-tech enterprises that have the potential for developments.
Therefore， it is necessary for innovative enterprises to keep a tight tie with the industrial development and the progress of science and technology， create a good creative culture， enlarge scientific research investment， and establish a well-improved innovation system， continuously make an enhancement and depth to their own innovation ability， and take full advantage of the financing opportunities provided by growth enterprise market for wide financing. As a result， the further development of the innovative enterprises can be promoted.
Improving Corporate-body Governance Structure. It is necessary for innovative enterprises to follow the road to the diversification of the main bodies of property rights， implement a reform according to the requirements of the modern enterprise system， and establish a scientific corporate-body governance structure.
Therefore， standardized corporate-body governance structure is the key to financing with growth enterprise market.
Enhancing the Sense of Social Responsibility. It is necessary for innovative enterprises to establish a sound financial accounting and management system， recognize the stock price reasonably， enclose money as less as possible and use money properly. Hence， the transaction can be standardized， a good enterprise image can be established， and also their sense of social responsibility can be enhanced.
Conclusion
From above analysis， it is necessary for innovative enterprises to clearly recognize development direction， strengthen innovation ability， perfect system design， enhance the sense of social responsibility， control risks reasonably， and give full play to the huge capital promotion role of innovative enterprises.
References
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