DEA Method-based Research On The Equity Efficiency Of The Listed Biopharmaceutical Companies In China

The current industrialization process of the biopharmaceutical industry in China still cannot keep pace with the economic development, and the transformation between science and technology and the productivity is still rather slow. Compared with other countries, the input-output level of China’s biopharmaceutical industry remains at a low stage. Therefore, the research on the equity financing efficiency of the listed biopharmaceutical companies becomes very significant, which can help draw the useful conclusions to improve the financing efficiency of the biopharmaceutical companies, and be conducive to optimize the allocation of resources in the biopharmaceutical industry, even in all the industries.This paper first reviews the theories of Western scholars on the financing efficiency, mainly including two theories:the financing structure theory, especially the agency theory and the New Pecking Order theory, and the efficiency theory, which provide the basis for the domestic research on the enterprise financing efficiency and for the definition of the enterprise equity financing efficiency in this paper. Then the domestic related researches have been analyzed, dividing into three categories, namely the financing efficiency, the equity financing efficiency and the study on the biopharmaceutical companies. Through exploring the above researches, the author finds that there are many scholars applying the DEA method to research the financing efficiency of SMEs, but the concerning on the financing efficiency of the high-tech corporate is rarely, not to mention the financing efficiency researches of the biopharmaceutical companies, which are lack of corresponding empirical analysis. Meanwhile, in the above literature, as for the articles applying DEA analysis, some of them only analyze from a whole, while others only from the relevant indicators, both of which are not very comprehensive. Thus, this article will study the equity financing efficiency of the biopharmaceutical companies in China from the view of theory and evidence.In the theoretical analysis, two issues have been cleared. First, the definition of the financing efficiency. According to the above theoretical basis and literature, we define the financing efficiency as the enterprise’s capacity to raise the required funds with lower cost and to use them efficiently under the influence of the internal and external environment. Therefore, while examining the financing efficiency of enterprises, on the one hand, the financing cost determined by the external environment of the enterprise needs to test, on the other hand, the enterprise’s internal environment should be examined and analyzed comprehensively, that is the company size, asset structure, capital structure, profitability, growth and other factors affecting financing capacity. Second, the definition of the biopharmaceutical companies. Make clear the concept of biopharmaceutical, list the characteristics of the biopharmaceutical companies as high-tech, high investment, high risk, high income and the long-period and indicate that this study on the biopharmaceutical companies is in the broad sense, that is, from the standpoint of the technologies applied to the products, they are biological technologies such as micro-organisms, enzyme engineering, monoclonal antibodies, transgenic technology; from the products of the companies, they are biological products, such as antibiotics, anti-cancer drugs, vaccines products, blood reagents, cytokines and recombinant products.In the empirical analysis, this paper adopts the DEA method to analyze the equity financing efficiency of the listed biopharmaceutical companies empirically. DEA method, an evaluation method based on the concept of the relative efficiency and taken the convex analysis and linear programming as a tool, applies the mathematical programming model to calculate and compare the relative efficiency between the decision-making-units, thus to make evaluations to the evaluation objects. It can take full account of the optimal input-output options of the decision-making-unit itself, consequently reflecting the information and characteristics of the evaluation object itself; at the same time, it is unique to evaluate the multi-input & multi-output analysis of the complex systems. The equity financing efficiency is a complex multi-input & multi-output system. DEA method is a rigorous mathematical approach, proven with the equivalent effectiveness of the Pareto in the economics; therefore, applying this method can reflect the effectiveness of enterprise funds more objectively.First, introduce the DEA model briefly and select the two specific analytic models CCR and VRS. In the selection of indicators, learning from the researches of some domestic scholars and combining with the characteristics of target enterprises, select the net total of equity financing, the ownership concentration, the degree of non-tradable shares and the assets liabilities ratio as the input indicators. Thereinto, the net total of equity mainly reflects the financing size of the listed biopharmaceutical companies, replaced by the annual total market value of the stock in this paper; the ownership concentration refers to the quantification of ownership concentration or ownership deconcentration manifested according to different numbers of shares owned by all the shareholders, represented as the proportion of large shareholders; the degree of non-tradable shares means the extent of a stock that can not be circulation, expressed as the ratio of the non-tradable shares to the total shares; the assets liabilities ratio reflects the impact of the capital structure on the equity financing, which not only can indicate whether the capital structure is reasonable, but also reflect the impact of the capital structure on the enterprise value, represented as the ratio of the company’s year-end total liabilities to the total assets. Choose the operating revenue growth rate, the return on net assets, the Tobin’s Q value as the output indicators. Thereinto, the operating revenue growth rate reflects the listed biopharmaceutical companies’ability to grow after the equity financing in China. The return on net assets, also known as return on shareholder’s equity, presents the company’s profitability after the financing, expressed as the percentage of the net profit and the average shareholders’ equity, which indicates the income level of shareholders’. equity and can measure the efficiency of the entity capital in the company. The higher the indicator is, the higher the benefits of the investment. Tobin’s Q value shows the allocation efficiency of the equity financing, represented as the ratio of the market value and the replacement value. And the market value equals to the equity value plus the market value of the net debt. Because the replacement value of the company must be obtained through assessment, take the result of the total assets minus the intangible net assets as the replacement value.This paper selects 27 non-ST shares, non-* ST shares biopharmaceutical companies listed before 2005 as the sample. Extracting the mentioned indicators, analyze the data using the deap2.1 operating software to draw some conclusions with economic significance:first, the overall equity financing efficiency of the listed biopharmaceutical companies is not high and still needs to improve, indicating that under the existing fund investments of the equity financing, the companies do not make full use of them, causing failure to meet the maximum output. There are reasons because of the society and the biopharmaceutical companies themselves, but also due to the too high ownership concentration and the too high non-tradable shares existing in all companies in China. Second, as for the conclusion that the equity financing efficiency of the listed biopharmaceutical company decreased in 06-09 years, the author believes that it may be due to the financial crisis in 2008, for the overall economic situation is not optimistic and the investors are lack of investment enthusiasm. At same time, the biopharmaceutical companies themselves also should be responsible for the decrease. The technological innovation of many biopharmaceutical companies is far from enough after the listing, and there are a lot of management problems existing in the companies. Third, for the majority of the listed biopharmaceutical companies, the returns to scale increase, but the DEA efficiency value lowers. There are many reasons for the low equity financing efficiency. The author analyzes that the lack of development funding in the late period maybe the reason for low equity financing efficiency, causing the companies can not be further developed and the related projects can not be carried out smoothly. If the biopharmaceutical companies can obtain sufficient investment capital, and strengthen the management of technology and project, the scale effect will improve the efficiency as the returns to scale are increasing in most companied.Based on the above reasons, several suggestions have been made to improve the equity financing efficiency of the biopharmaceutical companies:First, adjust the ownership concentration, control the ownership percentage of the largest shareholder and reduce the non-tradable shares. Second, reduce the non-tradable shares. Third, optimize the financing structure to maintain the appropriate assets liabilities ratio. Fourth, develop incentive agency mechanisms through the wage compensation plan between employers and employees or the stock option plan between shareholders and managers. Fifth, strengthen the supervision of the biopharmaceutical companies, mainly by regulating the legal system, raising the compliance costs and improving the industry self-discipline. Sixth, enhance the companies’competitive advantage and innovate continuously, mainly from the aspects of product differentiation, technology development and product innovation.The innovation of this paper mainly reflects in the following areas:first, the selected time period is 2006-2010, whose data is relatively new compared with the current literature. Second, the biopharmaceutical industry is selected. The current related researches are mainly the equity financing efficiency researches aiming to the high-tech companies, and there are few articles specializing in the equity financing efficiency of the biopharmaceutical companies. In the literature, the biotechnology pharmaceutical companies and the traditional pharmaceutical companies haven’t been distinguished. Third, the DEA model is only applied to the biopharmaceutical industry to analyze the equity financing efficiency. Combined the theory with the evidence, using the combination method of financial analysis and economic analysis, deeply analyze the reasons for low equity financing efficiency to reach more meaningful conclusions after obtaining the empirical results. Fourth, analyze the reasons for low equity financing efficiency from the perspectives of individual indicators and economic system, and propose the relevant countermeasures more comprehensively.Of course, there are imperfections in the discussion of this paper. For example, the analyzed data of the input indicators is fixed in the 2005, which may not reflect some changes in the stock market; the using cross-sectional data is lack of dynamics, and outlines the relationship between the equity financing of the listed biopharmaceutical companies in China and the business performance roughly; the listed pharmaceutical companies with the main business of biopharmaceuticals before 2005 are selected, so the listed time of the companies spreads rather wide resulting in relatively smaller comparability. For the further study, many involved issues need to further excavate.