Browse > Article
http://dx.doi.org/10.5762/KAIS.2011.12.2.699

Financial Leverage of Korean Business Conglomerates "Chaebols" in the Post-Asian Financial Crisis  

Kim, Han-Joon (Dept. of Business Administration, Hoseo University)
Publication Information
Journal of the Korea Academia-Industrial cooperation Society / v.12, no.2, 2011 , pp. 699-711 More about this Journal
Abstract
This study is to perform several major analyses to find any differences in the leverage between the pre- and post-period of the currency crisis. Moreover, another aspect is to investigate a financial aspect which has received relatively little attention to the firms and/or industries in the emerging capital markets in comparison to those in the advanced markets. The purpose of this empirical study is to confirm whether or not, it is myth or reality that Korean business conglomerate, chaebol, firms with subsidized financing from government-owned domestic financial institutions in the pre-financial turmoil, may still maintain their higher leverage, even after the crisis. It was found that firms belonging to the chaebol in Korea maintained higher average book-value and market-value based debt ratios, relative to their counterparts not belonging to the chaebol across all of the tested models. There were positive relationships of IND3(=the chemical industry) and Ind5(=the construction industry) to the book-value leverage. This study identified that there were no differences in the explanatory variables included, between the tested models (that is, without and with including the present value of an operating lease) related to each debt ratio. Since the Korean government continue to improve the corporate governance of the domestic firms in terms of accounting transparency and corporate ownership, it would be more efficient, if utilizing this "new" ratio considering an operating lease as an effective measurement of the level of leverage. In terms of the capital structure, it may also be possible for foreign firms to utilize and benefit from the results obtained in this study when operating their new businesses in Korea, given the economic circumstances such as the ongoing progress of the Korea-America FTA or the Korea-China FTA.
Keywords
Korean chaebol; Market-value; Book-value; Leverage; Japanese keiretsu; Asian Financial Crisis;
Citations & Related Records
Times Cited By KSCI : 1  (Citation Analysis)
연도 인용수 순위
1 Carl W. Kester, "Capital and Ownership Structure: A Comparison of United States and Japanese manufacturing corporations," Financial Management, pp. 5-16. Vol.(15), 1986.
2 Michael J. Barclay, Clifford W. Smith, and Ross L. Watts, "The Determinants of Corporate Leverage and Dividend Policies," Journal of Applied Corporate Finance. pp.4-19, Winter, 1995.
3 Jack Glen and Ajit Singh, "Comparing Capital Structures and Rates of Return in Developed and Emerging markets," Emerging Markets Review, 161-192. Vol.(5), 2004.   DOI   ScienceOn
4 Dea-Keun Park, Jeongsun Yun, and Bong-Hwan Cho, "A Research on the Determinants of Investment of Chaebol Firms," The Korean Journal of Financial Management, 35-61. Vol.(26), 2009.
5 Jeong Pyo Choi, "A Comparison of Management Structure between the Rising and Falling Chaebols," 79-100, Vol.(18), 2010.
6 Hanjoon Kim and Paul D. Berger, "The Management Characteristics of Korean Chaebols vs. non-Chaebols: Differences in Leverage and Its Ramifications: Myth or Reality?" Advances In Management, pp. 26-35, Vol.(2), 2009.
7 David C. Cole, and Yung Chul Park, Financial Development in Korea: 1945-1978, Cambridge, Mass: Harvard Univ. Press, 1983.
8 David C. Cole, and Yung Chul Park, Financial Development in Korea: 1945-1978, Cambridge, Mass: Harvard Univ. Press, 1983.
9 Hanjoon Kim and Paul D. Berger, "The Management Characteristics of Korean Chaebols vs. non-Chaebols: Differences in Leverage and Its Ramifications: Myth or Reality?" Advances In Management, pp. 26-35, Vol.(2), 2009.
10 Richard M. Steers., Yoo Keun Shin, and Gerardo R. Ungson, The Chaebol: Korea's New Industrial Might, Ballinger Publishing Company, NewYork, 1989.
11 Bassam Fattouh, Pasquale Scaramozzino, and Laurence Harris, "Capital Structure in South Korea: a quantile regression approach," Journal of Development Economics, pp. 231-250, Vol.(76), 2005.   DOI   ScienceOn
12 Franco Modigliani, and Merton H. Miller, "The Cost of Capital, Corporation Finance, and the Theory of Investment," American Economic Review, pp. 261-297, Vol.(48), 1958.
13 Lee Remmers, Arthur Stonehill, Richard Wright, and Theo Beekuisen, "Industry and size as debt ratio determinants in manufacturing internationally," Financial Management, pp. 24-32., Vol.(5), 1974.
14 David F. Jr. Scott and John D. Martin, "Industry influence on financial structure," Financial Management, pp. 67-73, Vol.(4) 1975.   DOI
15 Stewart C. Myers, "Determinants of Corporate Borrowing," Journal of Financial Economics, pp. 147-175. Vol.(5), 1977.   DOI
16 Samsung Economic Research Institute, Three Years after the IMF Bailout, Samsumg Economic Research Institute, Seoul, 2001a.
17 Hanjoon Kim, "Inter- and Intra-leverage Analyses for Large Firms in the United States and Korea," Journal of Asia-Pacific Business, pp. 34-64, Vol.(10), 2009.   DOI
18 Samsung Economic Research Institute, Three Years after the IMF Bailout, Samsumg Economic Research Institute, Seoul, 2001a.
19 Hanjoon Kim, "Inter- and Intra-leverage Analyses for Large Firms in the United States and Korea," Journal of Asia-Pacific Business, pp. 34-64, Vol.(10), 2009.   DOI
20 Bank of Korea, Financial Statement Analysis for 2003, Bank of Korea, Seoul, 2004.
21 Hanjoon Kim and Paul D. Berger, "The Management Characteristics of Korean Chaebols vs. non-Chaebols: Differences in Leverage and Its Ramifications: Myth or Reality?" Advances In Management, pp. 26-35, Vol.(2), 2009.
22 Jeong Pyo Choi, "A Comparison of Management Structure between the Rising and Falling Chaebols, 79-100, Vol.(18), 2010.
23 Valentin Azofra Palenzuela and Alfredo Martinez Bobillo, "Financial Structures of Spanish Firms: Multinational vs. Domestic," Multinational Business Review, pp. 64-79, 1994.
24 Timothy H. Hannan and Stephen A. Rhoades (1987), "Acquisition Targets and Motives: The Case of the Banking Industry", The Review of Economics and Statistics, pp. 67-74. Vol.(69), 1987.   DOI
25 Edward B. Deakin, "Distribution of Financial Accounting Ratios: Some Empirical Evidence," The Accounting Review, 51, pp. 90-96, Vol.(51), 1976.
26 Robert F. Bruner, "The Use of Excess Cash and Debt Capacity as a Motive for Merger," Journal of Financial and Quantitative Analysis, pp. 199-217, Vol 23, 1988.   DOI
27 Jun-Koo Kang, "The International Market for Corporate Control: Mergers and Acquisitions of U.S. Firms by Japanese Firms," Working Paper, University of Rhode Island, 1992.
28 Michael G. Ferri and ones Wesley, "Determinants of financial structure: a New Methodological Approach," Journal of Finance, pp. 631-644, Vol.(34), 1979.   DOI
29 Mo A. Mahmood and Edward C. Lawrence, "A Performance Analysis of Parametric and Nonparametric Discriminant Approaches to Business Decision Mking." Decision Sciences, pp. 308-326, Vol.(18), 1987.   DOI   ScienceOn
30 Hanjoon Kim and Paul D. Berger, "The Management Characteristics of Korean Chaebols vs. non-Chaebols: Differences in Leverage and Its Ramifications: Myth or Reality?" Advances In Management, pp. 26-35, Vol.(2), 2009.
31 Samsung Economic Research Institute, Three Years after the IMF Bailout, Samsumg Economic Research Institute, Seoul, 2001a.
32 Samsung Economic Research Institute, Korea Economic Report for 2001, Samsumg Economic Research Institute, Seoul, 2001b.
33 Samsung Economic Research Institute, Three Years after the IMF Bailout, Samsumg Economic Research Institute, Seoul, 2001a.
34 Hanjoon Kim and Paul D. Berger, "The Management Characteristics of Korean Chaebols vs. non-Chaebols: Differences in Leverage and Its Ramifications: Myth or Reality?" Advances In Management, pp. 26-35, Vol.(2), 2009.
35 Vihang R. Errunza, "Determinants of Financial Structure in the Central American Common Market," Financial Management, pp. 72-77, Vol.(8), 1979.
36 Hicheon Kim, Robert E. Hoskisson, Laszlo Tihanyi, and Jaebum Hong, "The Evolution and Restructuring of Diversified Business Groups in Emerging Markets: The Lessons form Chaebols in Korea," Asia Pacific Journal of Management, pp.25-48, Vol.(21), 2004.   DOI
37 Byung-Kook Kim, "The Politics of Chaebol Reform, 1980-1997," in Stephan Haggard, Wonhyuk Lim, and Euysung Kim, eds, Economic Crisis and Corporate Restructuring in Korea: Reforming the Chaebol, Cambridge University Press, UK, 2003.
38 Kyeongje Jeongui, November/December, Vol.(3), 1990.
39 E. Han Kim and Y. K. Lee, "Issuing Socks in Korea," S. G. Rhee and R. P. Chang, Eds., Pacific-Basin Capital Markets Research, Amsterdam: North-Holland, 1990.
40 S. C. Myers and N. S. Majluf, "Corporate Financing and Investment Decisions when Firms Have Information that Investors do not have," Journal of Financial Economics, pp. 187-221, Vol.(2), 1984.
41 Carl W. Kester, "Capital and Ownership Structure: A Comparison of United States and Japanese manufacturing corporations," Financial Management, pp. 5-16. Vol(15), 1986.
42 Robert M. Bowen, Lane A. Daley and Huber Jr., C. Charles, "Evidence on the Existence and Determinants on Inter-industry Differences in Leverage," Financial Management, pp. 10-20, Vol.(11), 1982.   DOI
43 Hanjoon Kim and Paul D. Berger, "The Management Characteristics of Korean Chaebols vs. non-Chaebols: Differences in Leverage and Its Ramifications: Myth or Reality?" Advances In Management, pp. 26-35, Vol.(2), 2009.