Agency Problems,Crowding-Out Effect And The Equity Arrangements Of Government Guidance Fund

As we all know,the information asymmetry,high risk,and high uncertainty of technology-based SMEs have led to the failure of the market for venture capital.Under this circumstance,the government guidance fund came into being,in order to alleviate the difficulty of financing for startups.However,the government's intervention in the venture capital market inevitably has a problem that the reality is inconsistent with its original intention,that is,system failure.Against this background,what kind of equity arrangement should the government guidance fund use to alleviate the problem of system failure,especially the agency problem and crowding-out effect,this needs further study.Based on this,this paper builds a corporate financing model.First,by comparing the availability of government guidance funds and private venture funds,analyze the mechanism of the role of government guidance funds in making up for market failure;Second,compare the availability of government guidance funds under different equity arrangements from the perspective of agency issues to obtain the optimal equity arrangement;Further,in the optimal equity arrangement,by weighing the leverage effect and crowding-out effect of government guidance funds on private capital,we can obtain government contribution ratio that maximizes the net effect of investment in the entire industry.Furthermore,under the optimal capital contribution ratio,we can obtain the total leverage effects of government guidance fund.Finally,further discuss the situation when introducing risk appetite in model expansion.Through model derivation,this paper draws the following conclusions:(1)Regardless of whether investors are risk-neutral or risk-averse,the availability of government guidance funds is higher than that of venture capital funds.However,relative to risk neutrality,the availability of government guidance funds and venture capital funds are reduced under the assumption of risk aversion;(2)When investors are risk-neutral,as far as availability is concerned,there is no difference in choosing loss compensation,income compensation,or risk sharing mechanism;Meanwhile,the optimal government funding ratio and the total leverage effect of the fund are related to the degree of failure of the venture capital market.Specifically,the higher the degree of market failure,the greater the government's optimal capital contribution ratio and the total leverage effect;(3)When investors are risk averse,from the financing availability,the government's optimal capital contribution ratio,and the total leverage effect,a comparative analysis of this three dimensions shows that the government guidance fund chooses the optimal compensation mechanism.At this time,the optimal government funding ratio is an increasing function of project risk.Finally,based on the research conclusions,we put forward suggestions for the arrangements of the government guidance fund related system in China.