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Financial market reforms and corporate financing in Korea

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  • Tae-Joon Kim
  • Jai-Won Ryou
  • Shinji Takagi

Abstract

Following the Asian financial crisis of 1997, the Korean economy experienced radical structural reforms, particularly in the financial sector. In this environment, Korea's corporate sector, once characterized by a high degree of leverage, turned to the capital market for financing, while banks diversified their lending targets. Our analysis of large firm-level data finds that, following the crisis, the corporate financing behaviour of both chaebol-affiliated and independent firms became more responsive to such factors as return on assets, cash flows and credit rating. On the lenders' side, the tighter prudential enforcement of the 1988 Basel capital adequacy requirements limited the supply of bank loans. We conclude that both the changed corporate incentives in an environment of greater market discipline and the improved prudential supervision explain much of the more diversified pattern of Korean corporate financing practices in the post-crisis period.

Suggested Citation

  • Tae-Joon Kim & Jai-Won Ryou & Shinji Takagi, 2010. "Financial market reforms and corporate financing in Korea," Applied Financial Economics, Taylor & Francis Journals, vol. 20(21), pages 1659-1666.
    • Handle: RePEc:taf:apfiec:v:20:y:2010:i:21:p:1659-1666
    DOI: 10.1080/09603107.2010.518947
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    References listed on IDEAS

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    1. Youngjae Lim, 2003. "Sources of Corporate Financing and Economic Crisis in Korea: A Micro-evidence," NBER Working Papers 9575, National Bureau of Economic Research, Inc.
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