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http://dx.doi.org/10.5762/KAIS.2021.22.1.275

Leverage and Corporate Failure: Analysis of Leverage Impact according to Company Size through Survival Analysis  

Kim, Bong-Min (Department of Business Administration, Changwon National University)
Kim, Byoung-Gon (Department of Business Administration, Changwon National University)
Kim, Dong-Wook (Busan Economic Promotion Agency)
Publication Information
Journal of the Korea Academia-Industrial cooperation Society / v.22, no.1, 2021 , pp. 275-284 More about this Journal
Abstract
Survival analysis was used to analyze whether there is a difference in the effect of leverage on corporate failure according to the firm size. A total of 25,250 (year-company) companies listed on the Korea Stock Exchange and KOSDAQ market from 1999 to 2019 were analyzed. First, the increase in leverage generally acts as a factor that increases the possibility of corporate failure. On the other hand, the increase in the trade payable ratio lowered the possibility of failure of the company. The increase in corporate trade payable was perceived as a factor in reducing the possibility of corporate failure because it was considered the active development of business activities or active use of interest-free debt rather than leading to an increase in corporate risk. Second, a higher leverage ratio and trade payable ratio in large firms lowered the possibility of corporate failure. In the SMEs, all types of leverage increases are a factor that increases corporate failure. Overall, the effect of leverage on corporate failure differs according to the size of the company.
Keywords
Leverage; Corporate Failure; Survival Analysis; Cox Proportional Hazard Model; Firm Size;
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