Shareholder Composition And Small-Loan Company’s Achievements Of Multiple Targets

Small-Loan Company is a kind of commercial Micro-Finance Institutions. It bears the dual targets of achieving financial goals as well as servicing society. Small-Loan Company has attained a rapid growth and contributed to regional economic growth in China since 2008. Meanwhile, the polarization among different companies becomes increasingly serious nowadays. Some companies face to the difficulties in cash flow, the decline of capital return, and the increasement of credit risks. These problems not only limit their capacity of achieving financial goals, but also make them violate the original intention of pilot policy.Small-Loan Company is enterprise legal person. Its ownership structure is a crucial element that affects its operation, management, and the balance among different targets. In China, the approval and supervision authority of Small-Loan Company belongs to provincial government. Many provinces put restrictions on the property and quality of Small-Loan Company’s shareholders for the consideration of security. This makes the shareholder composition one important factor that affects the achievements of multiple targets of Small-Loan Company. Besides, under the special policy setting, the ownership concentration degree of Small-Loan Company is high, and the main sponsor has absolute control. This also contributes the importance of shareholder composition. In this thesis, data from Shandong Province are used to analyze the effects of shareholder composition on the achievements of multiple targets of Small-Loan Company both theoretically and empirically.This thesis first defines the three targets of Small-Loan Company in China based on its commercial nature, its pilot background, its operation characteristics, as well as the dual objectives of Micro-finance Institutions. These targets are asset profitability, capital security and social service. Then through establishing simultaneous equation model, this thesis investigates whether these three targets could be achieved together in Small-Loan Company while operating. The empirical results show that the realization of social service does not reduce asset profitability or capital security. Meanwhile there is no alternative relationship between asset profitability and capital security.In theoretical analysis, this thesis first investigates the particularities of operation and ownership structure of Small-Loan Company. These two aspects make the first and third class Principle-Agent Problem is moderate, but the second class Principle-Agent Problem is relatively significant. The reasons that shareholder composition could affect achievements of multiple targets lie to the specialty of Principle-Agent Problems and the differences of stakeholders’ preference to targets. The realization of shareholder compositions’ effects on three targets is based on its effects on asset source and usage. Shareholders’ property, background, operation and management level, information and resource advantage, as well as social network are the key influence factors.In empirical analysis, this thesis focus on variables from five aspects:the property of main sponsor, ownership concentration degree, shares of corporate shareholders, shares of State-owned and collective capital, and shares of senior managers. Research is not limited to the effects on asset profitability, capital security and social service respectively. We also construct a comprehensive performance indicator. Empirical results are as follows. First, properties of main sponsors are crucial factors that affect achievements of multiple targets. Small-Loan Companies established by agriculture related enterprises offers relatively high percentage of agriculture related loans. Companies established by listing corporation realize high ROA and offers high micro enterprises loan, but its ratio of agriculture related loan is low. Companies established by financial enterprises achieve high asset profitability and capital security, but its social service is poor. They offer seriously limited agriculture related loan, which is the main cause of poor performance in social service. In the respect of comprehensive performance, companies established by financial enterprises act poorly overall. Second, private and personal capital is an important force of establishing Small-Loan Company. Under this circumstance, shares of State-owned and collective capital are crucial factor that influences Small-Loan Company’s performance. When State-owned and collective capital is in the company but not dominating, the Small-Loan Company could realize high ROA but significantly low social service. When State-owned and collective capital is dominating, its positive effect on ROA remains and the negative effect on social service disappears. In the respect of comprehensive performance, State-owned and collective capital dominating companies act better overall. Third, for Small-Loan Companies whose comprehensive performances are better, shareholder composition is not an important influence factor, while for those who perform relatively bad, shareholder composition is important. To be more specific, in poorly performed Small-Loan Companies, State-owned and collective capital may negatively influent comprehensive performance when this capital is not dominating, while main sponsor is agriculture related enterprises may do the opposite. Besides, shareholder concentration degree may have non-linear effects in these companies.Based on above research, this thesis gives some policy recommendations. Those are, being aware of the potential possibility that Small-Loan Company could not achieve three targets together; applying different cultivating and guiding measures to Small-Loan Companies that have different backgrounds; further increasing the supports and rewards for Small-Loan Company to offer agriculture related loans.