Tax Policy and Corporate Financial Structure in Korea

One of the issues of great policy concern in Korea has been the unusually high degree of financial leverage and the continuous deterioration of corporate capital structure. The capital structure existing at any one time and its change over time reflects corporate responses to the surrounding stimuli. To analyze the excessive leverage and the change in the corporate capital structure, this paper develops a theoretical model which takes into account the tax and nontax factors, both of which include general and Korea-specific aspects. The empirical test using the data of the last 25 years supports the hypotheses derived from the theoretical model. 320]