Financial constraints on investments and credit policy in Korea |
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| Institution: | 1. Zoological Institute and Zoological Museum, Biocenter Grindel, University of Hamburg, D-20146 Hamburg, Germany;2. Laboratory of Animal Physiology, Department of Biology, University of Turku, Turku FIN-20014, Finland;1. University of Pennsylvania, Philadelphia, PA, United States;2. University of Ottawa Heart Institute, Ottawa, Ontario, Canada;3. Columbia University, New York, NY, United States;4. Dana Farber Cancer Center, Harvard University, Boston, MT, United States;5. The Valley Hospital, Ridgewood, NJ, United States;6. University of Texas at Austin, Austin, TX, United States;7. The Children''s Hospital of Philadelphia, Philadelphia, PA, United States;1. Saint Louis University, USA;2. Pittsburg State University, USA;3. University of Oklahoma, USA |
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| Abstract: | The Korean financial system has been characterised by government interference and a chronic shortage of funds. Since the 1960s the government has promoted the financing of large, chaebol-affiliated firms. Towards the end of the 1980s, the government changed its focus from large firms to small- and medium-sized enterprises (SMEs). This study assesses the impact of this change in government policy on the financing constraints of different types of Korean firms. Using data on 198 Korean firms for the period 1991–1997, we estimate several specifications of a dynamic investment model to assess the financing constraints of Korean firms. We find that Korean firms suffered from informational asymmetries and severe financing constraints during this period, and that these imperfections differ across firms. Our findings suggest that the government’s change in focus towards SMEs has been successful in the sense that it has reduced financing constraints for these type of firms. We also find some evidence that firms with concentrated ownership are more financially constrained than firms with dispersed ownership. |
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