Effects of the matching fund program on IPO and bankruptcy of SMEs in Korea

Effects of the matching fund program on IPO and bankruptcy of SMEs in Korea Most small and medium enterprises (SMEs) in Korea struggle in financing R&D. Thus, the Korea Core Industrial Technology Investment Association (KITIA) was established to implement a matching fund program (MFP) to help SMEs with this undertaking. Applicant firms to the MFP are reviewed first based on their technology levels and are required to attract financing from venture capitalists (VCs), before receiving funds from the MFP. This paper, based on KITIAs MFP applicant data from 2001 to 2004, evaluates the performance of the MFP in terms of the success rate of funded SMEs’ initial public offerings (IPOs) and bankruptcy rates in relation to those SMEs that could not attract matching funds. Propensity score matching was used to eliminate selection bias from the data in order to assess the actual treatment effect of the MFP. According to the result of logistic regression applied to the matched data, MFP apparently did not have significant effects on IPO success and bankruptcy. This implies that MFP needs to allow VCs more time to evaluate SMEs covering qualitative aspects as well. It is expected that this change of structure can provide better performance of MFP in terms of IPO success and bankruptcy of matched SMEs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

Effects of the matching fund program on IPO and bankruptcy of SMEs in Korea

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Publisher
Springer Journals
Copyright
Copyright © 2012 by Springer Science+Business Media New York
Subject
Economics / Management Science; Management/Business for Professionals; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1007/s11187-012-9467-3
Publisher site
See Article on Publisher Site

Abstract

Most small and medium enterprises (SMEs) in Korea struggle in financing R&D. Thus, the Korea Core Industrial Technology Investment Association (KITIA) was established to implement a matching fund program (MFP) to help SMEs with this undertaking. Applicant firms to the MFP are reviewed first based on their technology levels and are required to attract financing from venture capitalists (VCs), before receiving funds from the MFP. This paper, based on KITIAs MFP applicant data from 2001 to 2004, evaluates the performance of the MFP in terms of the success rate of funded SMEs’ initial public offerings (IPOs) and bankruptcy rates in relation to those SMEs that could not attract matching funds. Propensity score matching was used to eliminate selection bias from the data in order to assess the actual treatment effect of the MFP. According to the result of logistic regression applied to the matched data, MFP apparently did not have significant effects on IPO success and bankruptcy. This implies that MFP needs to allow VCs more time to evaluate SMEs covering qualitative aspects as well. It is expected that this change of structure can provide better performance of MFP in terms of IPO success and bankruptcy of matched SMEs.

Journal

Small Business EconomicsSpringer Journals

Published: Jan 1, 2013

References

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