The Funding Structure of Technological Industries in Taiwan


Author:Ya-Hwei Yang and Shu-Hui Chan

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In the early stage of economic development in Taiwan, traditional industries contributed much to the economy. Since the 1980s, however, the role played by technological industries in the economy has become more and more important. These technological industries need various sources of funds that can be obtained through direct and indirect finance according to the different stages of development in which the enterprises find themselves. The theory of information asymmetry explains why indirect finance has usually developed earlier than direct finance. In the past, the banking sector extended most of the loans to the traditional industries. Following the growth of the technological industries, the share of bank loans channeled to technological industries began to increase. In comparing the shares of output value and of bank loans for different industries, we seek to determine whether the banks’ lending behavior was able to match the production output. The results indicate that the trend changed around the early 2000s. Before 2003, the share of banking loans for technological industries was lower than these industries’ corresponding output values. Since 2003, however, the share of banking loans has become higher than the share of output value. In addition, high-tech companies accounted for more than 75% of the share of the stock market value of listed companies in 2006, and for more than 90% of the value of those companies in the OTC market. It is obvious that the technological industries have had more and more funding channels in recent years compared to the past. Usually, the developmental process of technological companies includes R&D, business establishment, growth, and even transformation. What constitute suitable channels of funds vary for different developmental stages of the business. Our empirical results indicate that it is easier for larger enterprises to obtain funds from the banking sector and capital market. It is also easier for the older companies to obtain funds from banks, while new companies have to rely on certain individuals or juridical investors. The enterprises in their early stage of development usually seek funds from individuals or juridical investors, while those in the middle stage may go to venture capitalists. Finally, those in the late stage of growth can easily gain access to bank loans and capital markets.

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