SME Board Research Articles

SME growth trajectories, transitions and board role portfolios: A critical review and integrative model

This article presents a novel framework integrating a dynamic states approach to firm growth and a portfolio perspective of board roles. In our framework, we highlight four typical firm growth states aligned with primary board roles to guide firms effectively through the transitions associated with each state to reach a new equilibrium. The particular contribution of our framework is that it takes small and medium firm (SME) heterogeneity into account while capturing the dynamic nature of these states which are reached along non-linear, non-sequential and non-deterministic transitional pathways, as well as incorporating reverse and counterintuitive trajectories between states.

Nonlinearity between CEO power and firm leverage: evidence from the threshold model

This paper examines the non-linearity between Chief Executive Officer (CEO) power and firm leverage using a sample of 295 selected small and medium-sized enterprises listed on China Shenzhen Stock Exchange SMEs Board during the period 2009–2013. Specifically, a threshold estimation technique developed by Hansen (J Econ 93(2):345–368, 1999) is applied to investigate whether firms with powerful CEO use a sub-optimal leverage. The results confirm that there is a double-threshold effect exist and suggest an inverted U-shaped relationship between CEO power and firm book value-based leverage. Thus, these findings reveal that the distribution of decision-making power within firms can affect financing decision are made and CEOs with higher ability to exercise decision-making power tend to use lower leverage to pursue their own benefits.

Nonlinear relationship between CEO power and capital structure: Evidence from China's listed SMEs

This paper investigates the relationship between decision making power of chief executive officers (CEOs) and corporate capital structure in the context of emerging market characterized by deep collectivism and less prescriptive regulatory and legislative environment. Using a sample of 297 firms listed on Shenzhen Stock Exchange SMEs Board from 2009 to 2013, it finds a hump-shaped association between CEO power and leverage suggesting a strong nonlinearity between these two variables. Furthermore, the results show that the entrenchment effect of CEO power on firm leverage becomes more fiercely in state-owned firms. Our findings are robust to alternative calculation procedures for the CEO power index and to alternative estimation techniques. The shareholders and policy makers might leverage our findings to improve the performance of CEOs in the Chinese small and medium-sized enterprises.

Ownership structure, insider behavior, and IPO performance of SMEs in China

This paper examines the drivers of IPO performance of 783 SMEs in China between 2009 and 2012 that were listed on the SME and Growth Enterprise Boards. The study finds that firms that had prior venture capital (VC) investment did not perform better than those that did not. Among VC-invested firms, ventures (1) with strong VC control rights relative to those of the largest block shareholder, (2) with former ownership affiliation between the VC and the underwriter, and (3) that paid higher IPO fees had a negative long-term performance. The negative relationship between VC-underwriter ownership affiliation and long-term performance decreases as the reputation of the underwriter increases.

Topological properties and community detection of venture capital network: Evidence from China

Financial networks have been extensively studied as examples of real world complex networks. Based on the data from Chinese GEM and SME board, we establish a venture capital (VC) network to study the statistical properties, topological properties and community structure of the Chinese venture capital network. The result shows that there are no dominant venture capital firms in China which act as hubs in the VC network, and multi-company syndication is not popular in China, meaning that the relationships among venture capital companies are weak. The network is robust under either random or intentional attack, and possesses small world property. We also find from its community structure that, venture capital companies are more concentrated in developed districts but the links within the same district are scarce as compared to the links between different developed districts, indicating that venture capital companies are more willing to syndicate with companies in other developed districts. Furthermore, venture capital companies which invest in the same industry have closer relations within their communities than those which do not invest in the same industry.

Financing, reputation and information disclosure quality in the Chinese market

ABSTRACTIn this article, we propose a theoretical model based on the reputation theory and hypothesize a positive relation between the information disclosure quality and the company’s refinancing decision. We collected data from the listed companies, which refinances in Shenzhen main board and SME board during 2006–2012, as a panel sample, and tested the hypothesis empirically. The results indicate that there exists a significant positive correction short-term relation between refinancing decision and the information disclosure quality, but in the long term the relationship between the information disclosure quality and refinancing decision is not significant.

Family Involvement, Political Connection and IPO Underpricing: Evidence from the Companies Listed on the SME Board of China

Based on hand-collected information on private companies listed in the Chinese SME stock market, this paper studies how family involvement and political connection affect firms’ IPO underpricing. Especially, we investigate how underpricing varies with higher- and ordinary level political connection, with institutional development level and with company size. We find that generally, companies with higher-level political connection reap the preferential benefit by having higher offering pricing, that is lower IPO underpricing rate; but companies with ordinary political connection don’t enjoy this benefit. Also, we find that in regions with poorer institutional environment (such as the central and western regions of China), political connection doesn’t affect underpricing, but family involvement helps firm achieving lower underpricing. In regions with well-developed institutional environment (such as the eastern regions), both family involvement and political connection significantly lower the underpricing. At last, we find that for large companies, political connection can lower the IPO underpricing rate significantly; but for small companies, family involvement can lower the IPO underpricing rate. Results are robust to various tests.

Board Quality of SMESs in Malaysia: The Governing Role of Family Ownership

Abstract A lack of good governance characteristics among SME boards of directors is expected to lead to lower performance. Ownership structure is expected to monitor the management function of board of directors. Prior studies mostly attended on either listed companies or SMEs in developed countries, hence, resulted in the lack of evidence on governance practices among SMEs in developing countries. This study examines board characteristics among SMEs in Malaysia namely size, independence, expertise, ethnicity, and CEO duality and how they differ between family owned and non-family owned SMEs. A survey on SMEs in Klang Valley and Selangor finds that overall, the quality of board of directors of SMEs is low. The existence of more than 55% of family owned SMEs does not really provide a monitoring on the management. Differences in poor board characteristics between family owned and non-family owned SMEs are not significant. Further research is necessary to address the importance of ownership monitoring on SMEs management in order to further enhance the performance.

Analysis of the Dynamic Correlation between China’s Second Board and SME Board Based on Different Methods

This paper aims to study the dynamic correlation between the second board market and SME board market by building models to the return series of the two boards’ indexes and calculating dynamic correlation coefficient of the two markets on the basis of DCC-GARCH model and Copula model. The study results show as the following: a) there is positive correlation between the second board market and SME board market and the correlation is very strong; b) time-varying Copula model is better than constant correlation Copula model in describing the correlations among financial markets as it captures market return’s feature of time-varying; c) except for a little time-points, dynamic correlation coefficient calculated on the basis of DCC-GARCH model is in a stable interval.

An Empirical Study on the Effects of Equity Incentive of the Listed Corporations in the SME Board of China<br/> —An Empirical Analysis Based on the View of Earnings Management

Currently, most researches are focusing on Shanghai & Shenzhen exchange, and few researches have been done on the SME board. Besides, while studying the effect of equity incentive, most of the researchers have ignored the earnings management triggered by stock ownership incentive. This paper takes the SME board companies which have implemented stock ownership incentive as the research object. We have used earnings management to modify the company performance and carried out an empirical research to study the effect of stock ownership incentive. Our result shows that without earnings management to modify the company performance, stock ownership incentive is positively related to company performance. Taking the earnings management into account, the positive correlation relationship between stock ownership incentive and company performance will be weakened, and stock ownership incentive will stimulate earnings management.

The Empirical Analysis of Small and Medium Sized Pharmaceutical Enterprises Operating Performance and Debt Source Structure

in this paper, take 30 enterprises from Shenzhen SME board and the GEM pharmaceutical industry as samples, using empirical methods to study the relationship between the pharmaceutical industry and business performance and debt source structure. The results showed that small and medium-sized pharmaceutical enterprises have a negative impact on business performance, and operating liabilities have a positive impact on business performance; compared with the small service enterprises, performance of small and medium-sized pharmaceutical enterprise is poor, because its operating liabilities rate is relatively low, and the financial leverage is higher. Therefore, when small and medium-sized pharmaceutical enterprise debt financing, financing should be appropriate for financial liabilities, and should strengthen the management of debt financing.

Open source information, investor attention, and asset pricing

In this paper, we advocate the search frequency of stock name in Baidu Index as a novel and direct proxy for investor attention. Firstly, empirical results show that the quantified investor attention is a desired explanatory variable for abnormal return even trading volume is considered. Secondly, the Main Board is more efficient than the ChiNext and the SME Board in the view of informational efficiency. Thirdly, investor attention exhibits strong contemporary relationship with abnormal return. Fourthly, open source information can enhance the speed of information dissemination and make the market efficient.

Initial Public Offerings (IPOs) on ChiNext: Good Investment or Not?

We study the IPO underpricing and long-run performance of ChiNext, a newly-established growth enterprise board in China. Using a sample of 281 ChiNext IPOs between October 2009 and December 2011, the initial average market adjusted abnormal return (MAAR) is 33.5% and the average 12-month buy-and-hold abnormal return (BHAR) is -45.7%. Although the average MAARs of ChiNext is significantly higher than that of Main Board IPOs, it is not significantly different from SME Board IPOs during the sample period. However, the ChiNext average BHARs is significantly lower than those on both the SME and Main Boards. Regression findings support the information asymmetry hypothesis and the behavioural theory on underpricing for ChiNext IPOs, and we find that underperformance of ChiNext IPOs is consistent with the significant decrease of their operating performance after listing.

FINANCIAL UNIQUENESS AND PREDICTIVE MODEL FOR FINANCIALLY DISTRESSED, LISTED CHINESE SMES

ABSTRACT The purposes of this paper are to identify the financial uniqueness of financially distressed and non-financially distressed SMEs in China and also to develop a logistic regression model to distinguish the distressed from the non-distressed ones. The sampling frame is the listed companies on the Shenzhen Stock Market’s SME Board in 2010, consisting of 506 companies. The study applies parametric t-test and logistic regression to validate the hypotheses and model. The findings from the study indicate that there are common financial characteristics between the distressed and non-distressed groups. For distressed Chinese SMEs, liquidity did not seem to be a problem, but rather the abilities and skills of management of the distressed firms had a material bearing. The model in distinguishing distressed from non-distressed firms one year in advance is developed with an acceptable 85 per cent accuracy rate. The model should be further developed to minimize the Type I errors. New variables both qualitative and quantitative can be added. The paper contributes to the literature as very few studies have examined the distressed and non-distressed SMEs both in relation to financial characteristics and predictive model. The paper’s findings have implications for practitioners - investors, financial institutions, and the managers and regulators who are concerned with the sustainability of Chinese SMEs and the economy of the whole nation, to be able to detect/predict/judge the financial viability of the SMEs. Keywords Financial characteristics, Chinese SMEs, distressed and non-distressed SMEs, Logistic regression analysis model

SME top management team and non‐executive director cohesion

PurposeResearch into top management team (TMT) performance and consensus has been equivocal; furthermore, research into the role of non‐executive directors (NEDs) in UK SMEs concluded that multiple perceptions of “reality” exist between directors. By adopting an innovative methodological approach to analysis, the “black box” complexity of SME board information processes, perceptions and TMT relationships are made visible. This allows the tension caused by differing perceptions of the NED role on a small company TMT to be explored. The aim of this paper is to do this.Design/methodology/approachIn an in‐depth case study of one SME board, four directors' information and perception differences are investigated using a combined Johari window and set theory framework.FindingsApplication of this innovative analytical framework allowed the information process and differing perceptions of multiple directors to be plotted systematically. This surfaces the normally hidden “generative mechanisms” underlying the “real domains” of the SME board processes by explaining why and how the directors choose to share and hide information about the NEDs' role. Surfacing the nature of this information sharing and hiding is at the heart of appreciating the process of precarious equilibrium that achieves a fragile cohesion within the TMT.Research limitations/implicationsThis study reveals the fragility of TMTs to the process of information sharing and hiding. It demonstrates the sensitivity of the group to perceptions of the NED role and the influence the NED can have on information processes within the group and potentially its cohesion. NEDs joining small company boards need to be sensitive to the existing informational asymmetries that may be vital to maintaining precarious equilibrium and cohesion. In their role they are likely to become the confidant of more than one director and thus nodal points of “secret” information. They need considerable interpersonal sensitivity and tact if they are to fulfil their role of challenging the directors without detrimentally disrupting the group dynamic.Originality/valueThis paper answers the call for more qualitative research to investigate the “lived experience” and “behavioural processes” of directors by adopting the combined Johari window and set theory framework. This analysis tool offers an innovative method that will be of value to other researchers and practitioners investigating TMT group dynamics. It provides a rare opportunity to understand the information process and perceptions of a small company TMT and the influence on the equilibrium and cohesion of the group.

Split share structure reform effect model and empirical analysis

Based on the sample of 939 Chinese listed companies in the 40 former reformed batches, this paper investigates the effect of Chinese split share structure reform and its impact factors. First, considering Chinese split share structure reform as an event, an effect model is set up by means of the event study method, which takes abnormal return rate as a basic indicator to measure the reform effect. Further, in order to look for the impact factors on the reform effect, the empirical comparing analysis for different batches, different trading posts and different boards are done. These results show that the reform has positive effects on Chinese stock market and increases value of the listed companies. There is higher transformable return rate in the reform batches which include more Chinese listed companies with high quality performances. The shareholders who are in Shenzhen Stock Exchange market get higher transformable return rate than the shareholders who are in Shanghai Stock Exchange market. SME board has higher transformable return rate than the main board.

The role of non-executive directors in the Ghanaian SME sector

This paper reports on the role of NEDs among Ghanaian SMEs. The results of this study revealed that less than half of the SMEs sampled engage the services of NED. The study also revealed that relatively larger SMEs are more likely to employ the services of NEDs. We also found that over 80% of the SMEs with NEDs were either growing or growing rapidly. NEDs’ contributions were also found to be multi-various and cut across the range of SME board functions. The study showed that most SMEs acquire NEDs mainly through informal personal contacts such as family, friends of a director, business friends rather than through formal arrangements.

Board Pay and the Separation of Ownership from Control in U.K. SMEs

This paper examines Board pay for a sample of 571 U.K. SMEs from 1991 to 1995. Approximately half of the sample were closely-held (i.e., owner-managed) firms which allowed empirical testing of models of the relationship between Board pay and ownership from control characteristics. Consistent with their need to align shareholder and manager incentives, the results indicate that the change in nonclosely-held SME Board pay is significantly related to both external market pay comparisons and “benchmark” profits. This contrasts with the empirical results for the closely-held firms where Board pay awards are typically highly sensitive to current total profits but wholly unrelated to external market pay levels.