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Financial Development and Investment in Korea

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  • Young-Jin Ro
  • In-Chul Kim
  • Jin Woong Kim

Abstract

In this study, we investigate whether financial development could have a positive effect on the real economy in Korea through the investment channel. After deriving an investment function in which a firm’s investment is subject to financial restriction, we analyze whether financial development has reduced a firm’s financial restriction and analyze whether financial development has reduced a firm’s financial restriction by expanding available external financing that the firm faces. Using firm-level data in Korea from 1994 to 2011, we find that financial development affects a firm’s investment by reducing the firm’s financial restrictions. However, the effects of financial development on a firm’s financial restrictions are varied by industry or firm size. We also find that the financial crisis could deteriorate the effect of financial development on corporate investment.

Suggested Citation

  • Young-Jin Ro & In-Chul Kim & Jin Woong Kim, 2017. "Financial Development and Investment in Korea," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(3), pages 534-543, March.
    • Handle: RePEc:mes:emfitr:v:53:y:2017:i:3:p:534-543
    DOI: 10.1080/1540496X.2015.1095562
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    Citations

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    Cited by:

    1. Gaurav Gupta & Jitendra Mahakud, 2019. "Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-28, December.
    2. Gaurav Gupta & Jitendra Mahakud & Vivek Verma, 2020. "CEO's education and investment–cash flow sensitivity: an empirical investigation," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 17(4), pages 589-618, December.
    3. Samargandi, Nahla & Kutan, Ali M. & Sohag, Kazi & Alqahtani, Faisal, 2020. "Equity market and money supply spillovers and economic growth in BRICS economies: A global vector autoregressive approach," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    4. Gaurav Gupta & Jitendra Mahakud, 2022. "Impact of financial distress on investment-cash flow sensitivity: evidence from emerging economy," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 19(4), pages 713-743, July.
    5. Hwang, Sunjoo, 2020. "Financial Development and Economic Growth in Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 42(1), pages 31-56.
    6. Khan, Muhammad Asif & Khan, Muhammad Atif & Abdulahi, Mohamued Elyas & Liaqat, Idrees & Shah, Sayyed Sadaqat Hussain, 2019. "Institutional quality and financial development: The United States perspective," Journal of Multinational Financial Management, Elsevier, vol. 49(C), pages 67-80.
    7. Bahadır Ergün & Ömer Tuğsal Doruk, 2020. "Effect of financial constraints on the growth of family and nonfamily firms in Turkey," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-24, December.

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