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Dynamics of Capital Structure: The Case of Korean Listed Manufacturing Companies

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Author Info
Hyesung Kim
Almas Heshmati
Dany Aoun

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Abstract

In this paper, we develop a model of dynamic capital structure choice based on a sample of Korean manufacturing firms and estimate the unobservable optimal capital structure using a wide range of observable determinants. Unbalanced panel data of Korean listed firms for the period 1985-2002 is used. In addition to identifying and estimating the effects of the determinants of capital structure, we take into consideration some Korea-specific features, such as the structural break before and after the financial crisis and firms' affiliation to chaebol business groups. Our results indicate that the optimal capital structure has been affected by the financial crisis. Although the results suggest that chaebol-affiliated firms have higher optimal level of leverage and adjust their capital structure faster than non-chaebol firms, firms' leverage might be associated with factors other than chaebol-affiliation, such as size, profitability and growth opportunity. Copyright 2006 East Asian Economic Association and Blackwell Publishing Ltd..

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Article provided by East Asian Economic Association in its journal Asian Economic Journal.

Volume (Year): 20 (2006)
Issue (Month): 3 (09)
Pages: 275-302
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Handle: RePEc:bla:asiaec:v:20:y:2006:i:3:p:275-302

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Banerjee, Saugata & Heshmati, Almas & Wihlborg, Clas, 1999. "The Dynamics of Capital Structure," Working Paper Series in Economics and Finance 333, Stockholm School of Economics, revised 12 May 2000.
  2. Lee, Jong-Wha, 1996. " Government Interventions and Productivity Growth," Journal of Economic Growth, Springer, vol. 1(3), pages 391-414, September.
  3. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May. [Downloadable!] (restricted)
  4. Eduardo Borensztein & Jong-Wha Lee, 1999. "Credit Allocation and Financial Crisis in Korea," IMF Working Papers 99/20, International Monetary Fund.
  5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October. [Downloadable!] (restricted)
  6. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July. [Downloadable!] (restricted)
  7. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March. [Downloadable!] (restricted)
  8. Vilasuso, Jon & Minkler, Alanson, 2001. "Agency costs, asset specificity, and the capital structure of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 44(1), pages 55-69, January. [Downloadable!] (restricted)
  9. Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Jalilvand, Abolhassan & Harris, Robert S, 1984. " Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Study," Journal of Finance, American Finance Association, vol. 39(1), pages 127-45, March. [Downloadable!] (restricted)
  11. Heshmati, Almas, 2001. "The Dynamics of Capital Structure: Evidence from Swedish Micro and Small Firms," Working Paper Series in Economics and Finance 0440, Stockholm School of Economics.
  12. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March. [Downloadable!] (restricted)
  13. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  14. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July. [Downloadable!] (restricted)
  15. Bongini, Paola & Ferri, Giovanni & Hahm, Hongjoo, 2000. "Corporate Bankruptcy in Korea: Only the Strong Survive?," The Financial Review, Eastern Finance Association, vol. 35(4), pages 31-50, November.
  16. Cressy, Robert & Olofsson, Christer, 1997. " European SME Financing: An Overview," Small Business Economics, Springer, vol. 9(2), pages 87-96, April. [Downloadable!] (restricted)
  17. Demirguc - Kunt, Asli & Maksimovic, Vojislav & DEC, 1994. "Capital structures in developing countries : evidence from ten countries," Policy Research Working Paper Series 1320, The World Bank. [Downloadable!]
  18. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. Oh, Donghyun & Heshmati, Almas & Lööf, Hans, 2009. "Total Factor Productivity of Korean Manufacturing Industries: Comparison of Competing Models with Firm-Level Data," Working Paper Series in Economics and Institutions of Innovation 201, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies. [Downloadable!]
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