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The political economy of financial structure of Korean firms

Author

Listed:
  • Sanghack Lee
  • Kiwoong Cheong

    (Kookmin University, South Korea
    Keimyung University, South Korea)

Abstract

The high indebtedness of Korean firms is viewed as one of major causes for the financial (currency) crisis of Korea in 1997. This paper examines empirically the political economy underlying the financial structure of Korean firms. Specifically, this paper estimates the size of rents generated in Korean financial markets through financial repression during 1971 – 1991. The size of the rent shared by politicians and business sectors proves to be in the range of three to eight percent of Gross Domestic Product of Korea during the period. This paper also shows that firm size has been an important determinant for the financial structure of Korean firms. However, the role of the firm size as the determinant for financial structure has decreased after the financial crisis, suggesting that the tie between politicians and business has been weakened.

Suggested Citation

  • Sanghack Lee & Kiwoong Cheong, 2010. "The political economy of financial structure of Korean firms," Journal of Developing Areas, Tennessee State University, College of Business, vol. 43(2), pages 221-232, January-M.
    • Handle: RePEc:jda:journl:vol.43:year:2010:issue2:pp:221-232
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    More about this item

    Keywords

    Political Economy; Financial Structure of Korean Firms; Financial Crisis; Rent;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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