IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v49y2017i44p4501-4520.html
   My bibliography  Save this article

Financing preferences: evidence from the Korean market

Author

Listed:
  • Soon Suk Yoon
  • Hyo Jin Kim
  • Hongbok Lee
  • Doug Waggle

Abstract

We investigate the financing decisions of Korean firms during the period of 1996–2015. Korean firms follow a matching strategy for funding their cash needs. Cash inflows from investing activities are the primary source of funding for capital expenditures, and cash inflows from financing activities are the major means of covering cash outflows from financing activities. We also find that Korean firms’ financing practice of handling cash deficits can be described by the pecking order model modified and augmented by cash flow variables. Cash inflows from investing activities account for the major portion of financing to make up for cash deficits, followed by short- and long-term debt, and then equity financing.

Suggested Citation

  • Soon Suk Yoon & Hyo Jin Kim & Hongbok Lee & Doug Waggle, 2017. "Financing preferences: evidence from the Korean market," Applied Economics, Taylor & Francis Journals, vol. 49(44), pages 4501-4520, September.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:44:p:4501-4520
    DOI: 10.1080/00036846.2017.1284993
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2017.1284993
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2017.1284993?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Lemmon, Michael L. & Zender, Jaime F., 2010. "Debt Capacity and Tests of Capital Structure Theories," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(5), pages 1161-1187, October.
    4. Nigel Driffield & Vidya Mahambare & Sarmistha Pal, 2007. "How does ownership structure affect capital structure and firm value? Recent evidence from East Asia1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(3), pages 535-573, July.
    5. James H. Scott Jr., 1976. "A Theory of Optimal Capital Structure," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 33-54, Spring.
    6. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    7. Fauver, Larry & McDonald, Michael B., 2015. "Culture, agency costs, and governance: International evidence on capital structure," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 1-23.
    8. repec:bla:etrans:v:15:y:2007:i::p:535-573 is not listed on IDEAS
    9. Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
    10. Wolfgang Bessler & Wolfgang Drobetz & Matthias C. Grüninger, 2011. "Information Asymmetry and Financing Decisions," International Review of Finance, International Review of Finance Ltd., vol. 11(1), pages 123-154, March.
    11. Jamie Alcock & Frank Finn & Kelvin Jui Keng Tan, 2012. "The determinants of debt maturity in Australian firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 52(2), pages 313-341, June.
    12. Lin, Yueh-hsiang & Hu, Shing-yang & Chen, Ming-shen, 2008. "Testing pecking order prediction from the viewpoint of managerial optimism: Some empirical evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 16(1-2), pages 160-181, January.
    13. Shumi Akhtar & Barry Oliver, 2009. "Determinants of Capital Structure for Japanese Multinational and Domestic Corporations," International Review of Finance, International Review of Finance Ltd., vol. 9(1‐2), pages 1-26, March.
    14. Lamont, Owen, 1997. "Cash Flow and Investment: Evidence from Internal Capital Markets," Journal of Finance, American Finance Association, vol. 52(1), pages 83-109, March.
    15. Fama, Eugene F. & French, Kenneth R., 2005. "Financing decisions: who issues stock?," Journal of Financial Economics, Elsevier, vol. 76(3), pages 549-582, June.
    16. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    17. Jo, Hoje & Prinkerton, John M. & Sarin, Atulya, 1995. "Financing decisions and the investment opportunity set: Some evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 140-141, May.
    18. Karen Benson & Robert Faff & Tom Smith & Steven Cahan, 2014. "Fifty years of finance research in the Asia Pacific Basin," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(2), pages 335-363, June.
    19. Lee, Sangwoo & Park, Kwangwoo & Shin, Hyun-Han, 2009. "Disappearing internal capital markets: Evidence from diversified business groups in Korea," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 326-334, February.
    20. Shin, Hyun-Han & Park, Young S., 1999. "Financing constraints and internal capital markets: Evidence from Korean 'chaebols'," Journal of Corporate Finance, Elsevier, vol. 5(2), pages 169-191, June.
    21. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Market Development and Financial Intermediaries: Stylized Facts," The World Bank Economic Review, World Bank, vol. 10(2), pages 291-321, May.
    22. de Jong, Abe & Kabir, Rezaul & Nguyen, Thuy Thu, 2008. "Capital structure around the world: The roles of firm- and country-specific determinants," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1954-1969, September.
    23. Rajan, Raghuram G & Zingales, Luigi, 1995. "What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    24. Frank, Murray Z. & Goyal, Vidhan K., 2003. "Testing the pecking order theory of capital structure," Journal of Financial Economics, Elsevier, vol. 67(2), pages 217-248, February.
    25. Hicheon Kim & Heechun Kim & Peggy M. Lee, 2008. "Ownership Structure and the Relationship Between Financial Slack and R&D Investments: Evidence from Korean Firms," Organization Science, INFORMS, vol. 19(3), pages 404-418, June.
    26. Leary, Mark T. & Roberts, Michael R., 2010. "The pecking order, debt capacity, and information asymmetry," Journal of Financial Economics, Elsevier, vol. 95(3), pages 332-355, March.
    27. Nigel Driffield & Vidya Mahambare & Sarmistha Pal, 2005. "How Ownership Structure Affects Capital Structure and Firm Performance? Recent Evidence from East Asia," Finance 0509028, University Library of Munich, Germany.
    28. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    29. Wiwattanakantang, Yupana, 1999. "An empirical study on the determinants of the capital structure of Thai firms," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 371-403, August.
    30. Ang, James S. & Fatemi, Ali & Tourani-Rad, Alireza, 1997. "Capital structure and dividend policies of Indonesian firms," Pacific-Basin Finance Journal, Elsevier, vol. 5(1), pages 87-103, February.
    31. Laurence Booth & Varouj Aivazian & Asli Demirguc‐Kunt & Vojislav Maksimovic, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, February.
    32. Karen Benson & Peter M Clarkson & Tom Smith & Irene Tutticci, 2015. "A review of accounting research in the Asia Pacific region," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 36-88, February.
    33. Thomas O'Connor & Thomas Flavin, 2013. "The Effects of Ownership Structure on Corporate Financing Decisions: Evidence from Stock Market Liberalization," International Review of Finance, International Review of Finance Ltd., vol. 13(3), pages 383-405, September.
    34. Giannetti, Mariassunta, 2003. "Do Better Institutions Mitigate Agency Problems? Evidence from Corporate Finance Choices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 185-212, March.
    35. Gavin Cassar & Scott Holmes, 2003. "Capital structure and financing of SMEs: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 43(2), pages 123-147, July.
    36. Demirguc-Kunt, Ash & Maksimovic, Vojislav, 1996. "Stock Market Development and Financing Choices of Firms," The World Bank Economic Review, World Bank, vol. 10(2), pages 341-369, May.
    37. Nigel Driffield & Sarmistha Pal, 2007. "How Does Ownership Structure Affect Capital Structure and Firm Value? Recent Evidence from East Asia," CEDI Discussion Paper Series 07-04, Centre for Economic Development and Institutions(CEDI), Brunel University.
    38. James Ang & Yingmei Cheng, 2011. "The Endogeneity Of Information Asymmetry And Corporate Financing Decisions," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 34(3), pages 411-440, September.
    39. Gao, Wenlian & Zhu, Feifei, 2015. "Information asymmetry and capital structure around the world," Pacific-Basin Finance Journal, Elsevier, vol. 32(C), pages 131-159.
    40. Swee-Sum Lam & Weina Zhang & Reginald Reagan Chua Lee, 2013. "The Norm Theory of Capital Structure: International Evidence," International Review of Finance, International Review of Finance Ltd., vol. 13(1), pages 111-135, March.
    41. Chang, Chun & Chen, Xin & Liao, Guanmin, 2014. "What are the reliably important determinants of capital structure in china?," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 87-113.
    42. Myers, Stewart C., 2003. "Financing of corporations," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 4, pages 215-253, Elsevier.
    43. Malcolm Baker & Jeffrey Wurgler, 2002. "Market Timing and Capital Structure," Journal of Finance, American Finance Association, vol. 57(1), pages 1-32, February.
    44. Hongbok Lee & Sekyung Oh & Kwangwoo Park, 2014. "How Do Capital Structure Policies of Emerging Markets Differ from Those of Developed Economies? Survey Evidence from Korea," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(2), pages 34-72, March.
    45. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    46. Franco Modigliani & Enrico Perotti, 2000. "Security Markets versus Bank Finance: Legal Enforcement and Investors' Protection," International Review of Finance, International Review of Finance Ltd., vol. 1(2), pages 81-96, June.
    47. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    48. Givoly, Dan & Hayn, Carla, 2000. "The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative?," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 287-320, June.
    49. repec:bla:acctfi:v::y:2003:i:2:p:123-147 is not listed on IDEAS
    50. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    51. Kerry Pattenden, 2006. "Capital Structure Decisions Under Classical and Imputation Tax Systems: A Natural Test for Tax Effects in Australia," Australian Journal of Management, Australian School of Business, vol. 31(1), pages 67-92, June.
    52. Baek, Jae-Seung & Kang, Jun-Koo & Suh Park, Kyung, 2004. "Corporate governance and firm value: evidence from the Korean financial crisis," Journal of Financial Economics, Elsevier, vol. 71(2), pages 265-313, February.
    53. Jalilvand, Abolhassan & Harris, Robert S, 1984. "Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Study," Journal of Finance, American Finance Association, vol. 39(1), pages 127-145, March.
    54. Shumi Akhtar, 2005. "The Determinants of Capital Structure for Australian Multinational and Domestic Corporations," Australian Journal of Management, Australian School of Business, vol. 30(2), pages 321-341, December.
    55. Timothy J. Brailsford & Barry R. Oliver & Sandra L. H. Pua, 2002. "On the relation between ownership structure and capital structure," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 42(1), pages 1-26, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mai, Nhat Chi, 2012. "Market timing, taxes and capital structure: evidence from Vietnam," OSF Preprints t3mvs, Center for Open Science.
    2. Tung Lam Dang & Thi Hong Hanh Huynh & Manh Toan Nguyen & Thi Minh Hue Nguyen, 2017. "The firm information environment and capital structure: international evidence," Applied Economics, Taylor & Francis Journals, vol. 49(44), pages 4482-4500, September.
    3. Koh, SzeKee & Durand, Robert B. & Watson, Iain, 2011. "Seize the moment: Opportunism in Australian capital markets," Pacific-Basin Finance Journal, Elsevier, vol. 19(4), pages 374-389, September.
    4. Mário Santos & António Moreira & Elisabete Vieira, 2014. "Ownership concentration, contestability, family firms, and capital structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1063-1107, November.
    5. Gao, Wenlian & Zhu, Feifei, 2015. "Information asymmetry and capital structure around the world," Pacific-Basin Finance Journal, Elsevier, vol. 32(C), pages 131-159.
    6. Xiaoyan Chen & Xin Ling, 2017. "Determinants of Chinese equity financing behaviours: traditional model and the alternatives," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57, pages 69-100, April.
    7. Kuang Kuang Deng & Siu Kei Wong & Kwong Wing Chau, 2018. "Institutions and Capital Structure: The Case of Chinese Property Firms," The Journal of Real Estate Finance and Economics, Springer, vol. 56(3), pages 352-385, April.
    8. Vo, Xuan Vinh, 2017. "Determinants of capital structure in emerging markets: Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 40(C), pages 105-113.
    9. Ajid ur Rehman & Man Wang & Sultan Sikandar Mirza, 2017. "How do Chinese firms adjust their financial leverage: an empirical investigation using multiple GMM models," China Finance and Economic Review, Springer, vol. 5(1), pages 1-30, December.
    10. Muradoğlu, Yaz Gülnur & Onay, Ceylan & Phylaktis, Kate, 2014. "European integration and corporate financing," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 138-157.
    11. Rana El Bahsh & Ali Alattar & Aziz N. Yusuf, 2018. "Firm, Industry and Country Level Determinants of Capital Structure: Evidence from Jordan," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 175-190.
    12. Zeeshan Ahmed & Qasim Saleem & Abdul Qadir Bhatti & Bilal Ahmed, 2020. "Corporate Leverage Transmission under Information Asymmetry: Evidence from Non-financial Firms of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 176-184.
    13. Antonczyk, Ron Christian & Salzmann, Astrid Juliane, 2014. "Overconfidence and optimism: The effect of national culture on capital structure," Research in International Business and Finance, Elsevier, vol. 31(C), pages 132-151.
    14. Allini, Alessandra & Rakha, Soliman & McMillan, David G. & Caldarelli, Adele, 2018. "Pecking order and market timing theory in emerging markets: The case of Egyptian firms," Research in International Business and Finance, Elsevier, vol. 44(C), pages 297-308.
    15. Miguel Acedo-Ramírez & Juan Ayala-Calvo & José Rodríguez-Osés, 2013. "Capital structure of small companies in the Spanish footwear sector: relevant factors," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(2), pages 155-173, June.
    16. Paulo, Alves, 2018. "Abnormal retained earnings around the world," Journal of Multinational Financial Management, Elsevier, vol. 46(C), pages 63-74.
    17. G. Oka Warmana & I. Ketut Rahyuda & Ida Bagus Anom Purbawangsa & Ni Luh Gede Sri Artini, 2020. "Investigating Capital Structure Speed of Adjustment (SOA) of Indonesian Companies for Corporate Value," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 21(3), pages 215-231, September.
    18. Sony, Bipin & Bhaduri, Saumitra, 2021. "Information asymmetry and financing choice between debt, equity and dual issues by Indian firms," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 90-101.
    19. Shoaib Ali & Attiya Yasmin Javid, 2015. "Relationship between Credit Rating, Capital Structure and Earning Management Behaviour: Evidence from Pakistani Listed Firms," PIDE-Working Papers 2015:121, Pakistan Institute of Development Economics.
    20. Alves, Paulo F. Pereira & Ferreira, Miguel A., 2011. "Capital structure and law around the world," Journal of Multinational Financial Management, Elsevier, vol. 21(3), pages 119-150, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:49:y:2017:i:44:p:4501-4520. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.