Asan Socal Scence; Vol. 11, No. 18; 2015 ISSN 1911-2017 E-ISSN 1911-2025 Publshed by Canadan Center of Scence and Educaton The Research on Fnancal Rsk Investment Polcy to Hgh Technology Industry Fangwang L 1, Fangfang Lu 2 & Wen Wanyng 2 1 School of Publc Affars, Unversty of Scence and Technology of Chna, Hefe, Chna 2 School of Management, Unversty of Scence and Technology of Chna, Hefe, Chna Correspondence: Fangfang Lu, School of Management, Unversty of Scence and Technology of Chna, Hefe, Anhu, 230026, Chna. Tel: 86-151-5516-0201. E-mal: 120563762@qq.com Receved: October 17, 2014 Accepted: Aprl 2, 2015 Onlne Publshed: June 5, 2015 do:10.5539/ass.v11n18p25 URL: http://dx.do.org/10.5539/ass.v11n18p25 Ths paper s sponsored by Natonal Natural Scence Foundaton of Chna (Grant No.71073151). Abstract Hgh technology ndustry wth hgh rsks and hgh proftablty, t s because of these characterstcs has attracted a lot of rsk nvestment, the government as the man support of hgh technology ndustry, the ntegrated use of fscal means such as tax and nvestment and fnancng to adjust the relatonshp between venture nvestors, venture captal company and venture enterprse. Ths paper ntroduces the two-perod of partal equlbrum model, and analyses the queston that how rsk nvestment polcy work on hgh technology ndustry wth three aspects rangng from tax mechansm of rsk nvestment behavor, mechansm of governmental rsk nvestment polcy to venture nvestors, to the nfluence of the tax polcy for hgh technology enterprse on rsk nvestment mechansm. And t ponts out that the governmental taxaton type and tax base wll affect the rsk nvestors desre and hgh technology enterprse cost of captal, whch nfluence the development of the hgh technology ndustry. Keywords: rsk nvestment, hgh technology ndustry, mechansm 1. Introducton For hgh technology ndustres, ts generally nvolves technology process about research and development and transformaton, whch actually are closely related to nnovaton process. But nnovatve actvtes always have a very hgh uncertanty and rsk. Generally speakng, the hgher rsk of hgh technology ndustry s manly n technology research and development of hgh rsk, the market demand of hgh rsk and nnovaton's earnngs of hgh rsk (Luo, 2010). Frst of all, because the nnovaton actvty or technology research and development actvtes generally requres huge money and energy, but wth ncomprehensblty of research and development results, so as to make the nnovaton wth hgher falure rate. And regardless of success or falure, money and energy can drectly take back (Chen, 1998). So for hgh technology ndustres, t s the hgh rsk of technology research and development. That s to say, technology research and development wth hgh rsks makes more companes tend to copy and mtate other enterprse newly developed technology, and then lost the power of ndependent research and development. When more companes appear smlar stuaton, t wll appear the phenomenon of "watng game". Second, the hgh technology ndustry both n products and technologes, the upgradng speed s very fast, but the development of scence and technology s a long perod of actvty, so t s very lkely to be the phenomenon that technology development s success but unsuccessful n the market. That s to say, Companes nvest the money and energy, but the development of products and technology does not cater to the demand of the market Yong (Tao, 2004). Fnally, because when the busness developed hgh technology research and development, ts hghest expectatons of earnngs occuped the technology research and development of the total revenue, but the hgh technology ndustry exsts obvous externaltes, enterprse can only occupy the market porton of the earnngs, whch leads to the enterprse n nnovaton of hgh technology research and development as well as facng the rsk that earnngs can t compensate for research and development costs. Therefore, when carryng out nnovaton decsons, the enterprse wll face many aspects of rsks, such as technology, market and beneft. It s hard to predct the prospects of develop hgh technology research and 25
development. It greatly dampened the enthusasm of enterprses to carry out techncal nnovaton actvtes (Su, 2007), whch may affect the development of hgh technology ndustry. Therefore, from ths pont of vew, the government need to ntervene to the development of hgh technology ndustry, usng ts own fnancal means, and rsk nvestment polcy, as one of the fscal polcy of the government support, by adjustng the way of venture captal to help the enterprse to reduce the rsk of developng hgh technology, so that the hgh technology enterprses actvely and safely pay attenton to the technology development and promote the development of hgh technology ndustry. 2. Tax Mechansm of Rsk Investment Behavor Generally speakng, the hgh technology ndustry wth hgh rsk, but hgh rsk of the potental of hgh returns wll attract a lot of nvestment get n, whch contans rsk nvestment. The man body of venture nvestment has a lot, for example, securtes companes, commercal banks, personal captal, venture funds, etc., these are rsk supplers or called venture nvestors. The rsk nvestment company, ts behavor s more lke a knd of ntermedary organzatons, beng a brdge to the rsk of nvestors and captal demanders (Huang, 2009). For a typcal and complete surrender rsk acton, usually contans three unts, these are venture nvestors, venture captal company and venture enterprse, Among them, the rsk nvestors s the captal suppler that provde necessary funds to rsk enterprse and beneft; And the rsk enterprse s the captal buyer, accessng the funds from venture nvestors and used to support the development of ther own; Venture captal frms, as mentoned above, playng a man role for provdng cooperaton as a medaton between nvestors and rsk enterprse. Venture captal frm try to access the funds from venture nvestors through a varety of forms, and then n the form of equty and njected nto the rsk of enterprse, wth the fnancal support, the venture enterprse can start to carry out busness actvtes or to expand producton, venture captal company ext the venture enterprse by means of equty sell or transfer when meets the approprate opportunty, and get the payment. Out of funds agan to other ventures, so as to realze the contnuous nvestment cycle of growth. Therefore, the author thnks that, rsk nvestment fund s dfferent from other nvestment, manly because t has the characterstcs of crculaton value-added. From the above analyss we can see that the fund s actually constantly flow and crculaton n the whole process of rsk nvestment, and t s due to the transfer of funds, the venture captal process has the bass of taxaton. However, the tax lnk, the form of tax and other ssues, whch leads to drect nterventon and affect the venture nvestors, venture captal company and venture enterprse s behavor (Guo & Nng, 2001). For hgh technology ndustry, venture captal nvestment actvty s very actve, t makes us analyze the taxaton tache n the process of venture captal operaton n detal. We can use the Fgure 1 that shown below to descrbe the taxaton tache n the process of rsk nvestment n hgh technology ndustry. Fgure 1. Tax mechansm and cash flow of rsk nvestment behavor From the dagram, we can see that the fund s contnuously n the whole rsk nvestment behavor of crculaton, whch provdes the bass for the fscal sector on taxaton. The part A n the fgure represents the process that rsk nvestment companes rases fund from the suppler of venture captal. Generally speakng, n ths segment, t only nvolved n stamp tax and other smple taxes n the process of contract sgnng. In part B, t represents the meanng of rsk nvestment company wll be n the form of equty captal njecton to the hgh technology enterprse, whch nvolves the nvestment behavor of tax, etc. In general, for the hgh technology enterprses especally small and medum-szed enterprses, fscal polcy can have credt, such as drect deducton of taxable ncome n proporton of nvestment. 26
In part C, hgh technology enterprse uses venture captal funds to carry out the operaton, developed or produce products, these products for sale n the market wll make hgh technology enterprse get the correspondng sales and profts. In ths segment, the government wll mpose turnover tax from sales revenue accordng to a certan tax levy, such as value-added tax, etc. For hgh technology enterprse profts at the same tme, the mnstry of fnance accountng wll mpose enterprse ncome tax, etc. In part D and F, property rght transacton s completed means that rsk nvestment funds out of the hgh technology enterprse, the venture captal company and the suppler of venture captal wll share the nvestment returns n advance n accordance wth the contract. If the rsk nvestment company uses the partnershp system, so n part D wll be mposed ndvdual ncome tax n accountng; f the rsk nvestment company s n the form of corporatons, so n part D, t wll be mposed the enterprse ncome tax n accountng. To part F (suppler of rsk nvestment rsk gets nvestment returns), also has the smlarty wth part D, that s to say, f t s the nsttutonal nvestor, enterprse ncome taxes on ts earnngs s needed; If ndvdual nvestors, ndvdual ncome tax should be mposed. Part E s the process about Venture Captal Company wthdraws the funds, may be through the IPO, company repurchase or a varety of ways, such as mergers and acqustons. In ths part, the fscal department of taxaton manly s the behavor of tax, such as the securtes transacton tax n the way of IPO, company repurchase or other property tax n the segment of mergers and acqustons, etc. 3. Mechansm of Governmental Rsk Investment Polcy to Venture Investors Generally speakng, the fscal department of the rsk nvestment polcy s manly through the form of tax to adjust the nvestors and the hgh technology enterprse whch uses venture captal (Heng, 2005). In ths secton, the author wll try to apply two-perod of partal equlbrum model, from ncome tax, to analyze how rsk nvestment polcy work on the hgh technology ndustry. The man purpose for venture captal enters to hgh technology ndustry s to hope that wth the hgh rsk of hgh technology ndustry s equal to more generous returns. Generally speakng, the hgher the rsk, the more benefts. When a venture nvestor decded to put the fund nto a hgh technology enterprse project, we can nfer that the expected ncome s hgher than safety nvestment benefts, and can be compensated for the rsks of nvestment (Fan, 2001). So we mght as well n the rsk nvestment on the market only has a typcal nvestor, and ts behavor follows the above nference. Then the rsk nvestor has a problem of how to dstrbute the fund that he owns, that s to say, how much proporton of fund to the rsk nvestment of hgh technology ndustry, and how much to securty nvestment. And on the analyss of that, f the government mposes taxes on rsk nvestment process, how would the proporton change. For smplcty, we mght set as for a rsk nvestor, hs decson s depended on ncome Y and rsk R, and then we can thnk that for safety nvestment, the ncome and rsk are 0. Then we set the rate of ncome from nvestor's assets as dscrete random varables A( = 1,2,..., n), and the probablty of ts value s P, then we know that the expected ncome meets: Y = P A (1) And meet P = 1. And the same, we can get the rsk defnton, that s: R = P j Z j (2) Z( j m) Among them j = 1,2,3,..., represents rsk random varables whch rsk faced by nvestors, and there are P j = 1. Accordng to the above defnton, we can n the rsk - beneft dagram to descrbe the dstrbuton of nvestment rsk of nvestor. As shown n Fgure 2, Rsk nvestors n ther nvestment preferences can wth ndfference a seres of curves to represent, For example, the curve n the U and U 1 2 etc. The ndfference curve, Rsk nvestment allocaton n securty nvestment (for example, to nvest n government bonds) and rsk nvestment proporton s dfferent, But t s the same for the rsk preferences of nvestors. We may as well assume that, when the rsk faced by nvestors s ncreased, ncome compensaton wll ncrease the requred at a hgher level, that s 27
to rsk of nvestors, the rsk of the margnal substtuton rate s ncreasng ncome. Reflected n the rsk - beneft curve, the slope of the ndfference curve wth gan decreasng. Fgure 2. Mechansm of rsk nvestment polcy to venture Investor behavor can be used n rsk nvestment accounted for all the captal rato,.e. f the chance lne, such as OP, to express the rsk nvestor's nvestment strategy, then for any a pont X on OP, venture captal funds of the total captal rato can be expressed by OX / OP. In the orgn O, Venture captal accounted for 0, All the money s nvested n securty nvestment. When a pont X along the opportunty OP to pont P lne moves, can be thought of as the proporton of nvestment rsk ncreases, when the pont and pont P, you can thnk at all of the funds has been njected nto the rsk nvestment.in the nterventon of rsk nvestment polcy wthout the fnancal department of the stuaton, the rsk nvestors wll choose A pont on behalf of the nvestment strategy, namely OA/ OP s the rsk funds accounted for the proporton of funds for all. To smplfy the nvestment polcy of fscal rsk and return n drectly on the ncome tax, and the costs and benefts of havng the same treatment, the ncome X tax TX for the correspondng rsk nvestors, and f the return s negatve, that s the loss n the nvestment, the type of the expresson s the meanng of Fnance for ts tax refund or tax exempton. Ths system s a knd of "allows full loss offset" (full loss offset) system. Of course, n realty s the case of many, such as a loss of some enterprses from other tems gan reducton. Agan, f the net proft s negatve, then the government may accordng to the correspondng tax rebate or allow the loss for the next perod profts after deducton and calculaton of ncome tax. We are not dffcult to analyss that, n the above mechansm, rsk nvestors obtan actual nvestment ncome after tax ncome,.e.: ' Smlarly, the rsk of nvestors wll be reduced, that s: Y = P X (1 T ) = Y (1 T ) ' R = Pj Z j (1 T ) = R(1 T ) (4) Reduce the rsk and return the same proporton ( 1 - T), as reflected n the rsk return curve, pont P along the chance lne accordng to the proporton ( 1 -T) to the orgn of moble, and get to the pont Q. For venture nvestors, t may also have the same nterests, whch may reman at the pont A of takng the same rsks and obtan the same ncome. But the new chance lne for OQ rather thanop, at ths tme the rsk of nvestors, changed ts structure of nvestment. Rsk nvestment accounted for the total captal rato from the orgnal OA/ OP ncreased to OA/ OQ. That s to say, the new portfolo, rsk nvestment decson pont s located n the former opportunty lne OP A * * pont, andoa / OP = OA/ OQ. Rsk nvestment polcy of the government wll "lure" rsk nvestors more funds to rsky markets (such as hgh technology ndustry market). Of course, n whch the government for nvestors to share part of the rsk R, and revenue from the shared rsk nvestors nvestment ncome Y (3) 28
Of course, n whch the government for nvestors to share part of the rsk, and revenue from the shared rsk * nvestors nvestment ncome. In Fgure 2, the orgnal P pont wll move to P pont, and new opportuntes * for OP lne. A and are B located on the same horzontal lne, accordng to the prncple of smlarty trangle, A and B sad that rsk nvestment strategy s consstent. The bggest rsk for nvestors utlty pont C can be n the B pont above may also be under B, dependng on the relatve level of ncome effect and substtute effect. Rsk levels wll be fscal polcy to compensate for the effects of the rsk nvestors can stand level, namely the full compensaton for the loss of the case, nvestors wll be "nduced" take the rsk preference of nvestment strategy, and f the nvestment polcy fnancal rsks on the compensaton for the loss of 0 cases, nvestors are wllng to take rsk wll be reduced. Gve the government fnancal compensaton mechansm of rsk nvestors are not suffcent, wll be less than full loss compensaton mechansm level "lure" rsk nvestors more funds nto the hgh rsk market (such as hgh technology ndustry market). It mght be further relaxed, on the assumpton that the safety nvestment wll also have the ncome, and the ncome remans postve, and whatever the ncome, rsk nvestment polcy of the fnancal sector wll be on ts ncome tax mposton. Then accordng to the above analyss, wthout takng nto account the safety nvestment tax stuaton, the government tax of rsk nvestment ncome wll be "lure" rsk nvestors mprove rsk nvestment rato. And when the government mposed a safe nvestment ncome tax, f rsk nvarant, then the rsk nvestors returns and there wll be some reducton. Because the ncome elastcty of demand when the rsk s bgger, so the possblty that means that the rsk nvestors tend to reduce the rsk of nvestment and towards greater securty nvestment. The ncome elastcty of demand when the rsk s small, t means that the rsk nvestors may ncrease the rsk of the nvestment rato, and then make the rsk nvestment has ncreased n sze. 4. Tax Polcy for the Mechansm of the Effect of Rsk Investment of Hgh Tech Enterprses Generally speakng, controllng for other factors reman unchanged, the nvestment polcy of fscal rsk for hgh technology companes, wll manly affect the cost of captal, thus affect the rsk nvestment for hgh tech corporate nvestment. In fact, f the tax polcy to ncrease hgh technology enterprse's cost of captal, then the rsk nvestment wll be reduced; smlarly, f the tax polcy to reduce the cost of captal and hgh technology enterprse, the venture captal nvestment wll ncrease. Effect of man tax cost of captal hgh technology enterprse s the enterprse ncome tax. Therefore, the author wll focus nvestment effect for hgh technology enterprse ncome tax to explan. Well located n the fnancal sector does not levy ncome tax case, the cost of captal can be expressed as: C = P( r + η) (5) Where C represents the cost of captal, P captal goods prces, sad r says the current market nterest rate, η rate of deprecaton. When the Treasury Department to levy ncome tax on enterprses, the cost of captal can be expressed as: ' C = P( r + η )(1 tz tx) /(1 t) (6) Where t represents the enterprse ncome tax rate, z expressed n unts of captal value of future deprecaton deductons, x present value represents the unt captal nterest deductons. So the enterprse ncome tax for the role of nvestment depends on the sze of ( 1-t) and ( 1 tz tx). The current greater than the latter, we can thnk the enterprse ncome tax reduced nvestment. And correspondngly, f the latter about the former thngs, then we thnk the enterprse ncome tax reduces the cost of captal, thereby stmulatng nvestment. If captal deprecaton and nterest deducton value meet the z + x = 1, s that corporate ncome tax has no effect on the cost of captal and captal pull. If you allow captal n accordance wth the rato of η deprecaton also allows the nterest deducton, so that the net present value per unt of captal deprecaton and nterest deducton value can be expressed as: z = ( 1 + r) η(1 + η) = η (/ r + η) (7) x = ( 1+ r) r(1 + µ ) = r /( r + η) (8) It s not dffcult to have z + x = 1, the cost of captal for P ( r + η). It s not dffcult to see from the type (6), when the current taxaton polcy allows the most nterest deductons, deprecaton rate wll be the key elements of 29
captal cost. Mght as well let taxaton polcy stpulated deprecaton rate of δ s less than the actual deprecaton rate η then deprecaton unt captal deducton value: z ' n n = (1 + r) δ (1 + δ ) = δ (/ r + δ) (9) The present value of a unt of captal and the nterest deducton, so t s not dffcult to know, the cost of captal: C = P( r + η ) + [ Ptr( η δ ) /(1 t)( r + δ )] (10) It s not dffcult to see from equaton (10), f η > δ, Deprecaton, provsons of fscal and tax polcy rate s lower than the actual deprecaton rate, so the cost of captal wll ncrease, rsk nvestment wll be nhbted; In contrast, f fscal polcy mplementaton of accelerated deprecaton of the system, then the captal costs wll be reduced, the rsk nvestment actvtes wll be actve. 5. Conclusons The nvestment polcy of fscal rsk manly through tax n the form of the venture captal nvestors and the use of hgh tech enterprses of venture captal are adjusted. The two perod the partal equlbrum model on hgh tech ndustry fnancal support polcy of nvestment rsk mechansm was analyzed by usng the obtaned, tax, tax and the tax base of dfferent wll affect the rsk nvestors wll to a large extent and the cost of captal hgh technology enterprse use of venture captal, then nfluence the development of hgh tech ndustry the pace of. The rsk of nvestors, the ncome elastcty of demand for government changes to tax rsk nvestment ncome wll change the rsk, thus affectng the wllngness of nvestment and the proporton of nvestment rsk to nvestors(lu et al., 2007). The use of venture captal enterprses, tax polcy changes, such as the calculaton method of pre tax deducton of enterprse ncome tax changes, wll affect the captal cost to a certan extent, affect the actve degree of rsk nvestment. References Chen, D. M., Pe, X. S., & Shen, M. H. (1998). Hgh technology nvestment rsk predcton and assessment theory and method. Forecast, 17(1) 48-52. Fan, W.-Y. (2001). The research on venture captal market. Jnan Unversty Guo, Q.-W., & Luo, N. (2001). The Theory and Research on the Relatonshp of the Taxaton and Venture Captal. Publc Research, (7), 18-25. He, W. (2005). Venture Captal Investment and Technologcal Innovaton of Hgh-tech Enterprses. Wuhan Unversty. Huang, H.-L. (2009). Study of tax Polcy on venture captal n Chna. Southwestern unversty of fnance and economcs. Lu, Z.-W., Wang, D.-P., & Lu, C. (2007). The governmental publc subsdes for rsk nvestment. Journal of management, 1(11), 833-838 Luo, L.-P. (2010). A study of mprovng the fscal and taxaton Polcy of chna s venture captal. Northeast unversty of fnance and economcs. Su, D.-Y. (2007). The fscal polcy research on hgh technology ndustry nvestment and fnancng system n Chna. Socal scence ssue, 2(6), 137-140. Tao, Y.-Y., & Xong, P. (2004). Hgh and new technology enterprse technology nnovaton and venture captal research. Industral technology economy, 23(4), 70-74. Yuan, X.-L. (2004). Tax polcy choces to promote the development of rsk nvestment. Studes of fnance and economcs, 3(5), 11. Zhang, Q.-S. (2009). Jn-cheng Zhang.Analyss on Hgh technology enterprse rsk nvestment fscal polcy. Scentfc management research, 2, 26. Copyrghts Copyrght for ths artcle s retaned by the author(s), wth frst publcaton rghts granted to the journal. Ths s an open-access artcle dstrbuted under the terms and condtons of the Creatve Commons Attrbuton lcense (http://creatvecommons.org/lcenses/by/3.0/). 30