Open AccessA Risk Assessing Approach on Hi-tech SMEs of China: Based on Multi-stage Compound Real Options
Author(s) -
Chen Zhang,
Weidong Zhu,
Allen Garth,
Yong Wu
Publication year - 2008
Publication title -
journal of service science and management
Language(s) - English
Resource type - Journals
eISSN - 1940-9907
pISSN - 1940-9893
DOI - 10.4236/jssm.2008.11006
Subject(s) - business , venture capital , finance , loan , china , credit risk , risk management , high tech , small and medium sized enterprises , industrial organization , law , political science
The Small and medium-sized enterprises (SMEs) typically have very limited capital and rely on external finance although they may self-finance. When seeking external finance, most SMEs rely on the banking sector. Because the direct financial market and venture capital (VC) system need to be further improved in China, financing from commercial bank undoubtedly becomes the main support for hi-tech SMEs. While the high risk of hi-tech SMEs requires commercial banks make credit decision based on effective risk management. Focusing on the characteristics of hi-tech SMEs, this paper reviews the risk assessing approaches in VC, and puts forward an innovation of using the multi-stage compound real option approach in risk assessing for hi-tech SMEs and achieving a multi-stage loan’s decision making for hi-tech SMEs based on the firms’ value of each stage. In this way, commercial banks can admeasure hi-tech SMEs’ credit reasonably and can support the development of hi-tech SMEs efficiently