Firm diversification and equilibrium risk pooling: The Korean financial crisis as a natural experiment |
| |
Authors: | Robert Masson Heather Tookes Taejong Um |
| |
Institution: | 1. Cornell University, United States;2. Yale School of Management, United States;3. Samsung Investments, Republic of Korea |
| |
Abstract: | We use the Korean Financial Crisis as a natural laboratory for examining interactions among firm diversification, equilibrium capital structure and tail probability events. When the crisis hit in 1997, several major firms, including a large number of highly leveraged conglomerates (Chaebols), experienced bankruptcies. We show how diversified Chaebols obtain higher equilibrium leverage than non-Chaebols (a “cosigner effect”). In the event of a low probability macro-economic shock, the model predicts a systematic change in relative bankruptcy risks of Chaebol firms. To examine this implication, we introduce an empirical methodology that decomposes equilibrium debt into demand, supply and Chaebol-specific factors, for use in a bankruptcy prediction model. We find that the primary cause of Chaebol firm bankruptcies was not idiosyncratic leverage, but leverage systematically related to greater equilibrium access to debt during normal times. |
| |
Keywords: | |
本文献已被 ScienceDirect 等数据库收录! |
|