Credit Risk and Allocation Criteria: Organisational and Managerial Problems for Financial Institutions Affecting Technology Based Companies Financing

Abstract

The aim of this work is the analysis of the problems affecting financial institutions in technology based companies financing. First, the question whether a specific type of financial system is more suitable than others in allocating financial resources to independent technology based companies is considered. After, both managerial and organisational problems that financial institutions have to face in managing this activity are examined in details. Implementing such an activity requests to take into consideration two main elements: a) features are different from those affecting normal activity, so it is the best choice to create an unit that is independent from the main body. It is also necessary to remember that a local presence is a successful factor for this activity. For banks in particular, the possibility to exploit the existing commercial network allows a technology unit to be local avoiding huge investments; b) the market size is small, so start up and development investments have to meet the revenues amount. Possible solutions to this problem are exploiting the structures of already existing branches and running the activity jointly with other financial institutions.

Keywords: Corporate banking, technology based companies financing, capital allocation criteria, management financial institutions

JEL Classification: G21, G24, G32, M13, O32