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Corporate Bankruptcy in Korea: Only the Strong Survive?

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  • Bongini, Paola
  • Ferri, Giovanni
  • Hahm, Hongjoo

Abstract

We analyze whether the build-up of financial vulnerabilities led listed Korean companies to bankruptcy. We find that pre-crisis leverage is systematically high for both poor performing/slow growing firms and for profitable/fast-growing firms. Pre-crisis leverage raises the probability of bankruptcy, which is lower for firms: (1) relying more on (renegotiable) bank credit; (2) with less inter-firm debt; and (3) having higher interest coverage ratios. Finally, none of these liquidity variables helps predict bankruptcies for chaebol-firms, suggesting that liquidity constraints are more stringent for non-chaebol. Thus, in a systemic crisis it is not only the strong/healthy that survive. Copyright 2000 by MIT Press.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:finrev:v:35:y:2000:i:4:p:31-50
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    Cited by:

    1. Hyesung Kim & Almas Heshmati & Dany Aoun, 2006. "Dynamics of Capital Structure: The Case of Korean Listed Manufacturing Companies ," Asian Economic Journal, East Asian Economic Association, vol. 20(3), pages 275-302, September.
    2. Wikil Kwak & Yong Shi & Gang Kou, 2012. "Bankruptcy prediction for Korean firms after the 1997 financial crisis: using a multiple criteria linear programming data mining approach," Review of Quantitative Finance and Accounting, Springer, vol. 38(4), pages 441-453, May.
    3. Kim, Se-Jik, 2004. "Bailout and conglomeration," Journal of Financial Economics, Elsevier, vol. 71(2), pages 315-347, February.
    4. Ferri, Giovanni & Tae Soo Kang, 1999. "The credit channel at work - lessons from the Republic of Korea's financial crisis," Policy Research Working Paper Series 2190, The World Bank.
    5. Keisuke Otsu, 2008. "A Neoclassical Analysis of The Korean Crisis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 449-471, April.
    6. Francesca Bartoli & Giovanni Ferri & Pierluigi Murro & Zeno Rotondi, 2011. "Soft information and loan supply crisis. Evidence from the credit files of a large bank," Rivista Bancaria - Minerva Bancaria, Istituto di Cultura Bancaria Francesco Parrillo, issue 5-6, november.
    7. Bartoli, Francesca & Ferri, Giovanni & Murro, Pierluigi & Rotondi, Zeno, 2013. "Bank–firm relations and the role of Mutual Guarantee Institutions at the peak of the crisis," Journal of Financial Stability, Elsevier, vol. 9(1), pages 90-104.
    8. Shuk-Wern Ong & Voon Choong Yap & Roy W.L. Khong, 2011. "Corporate failure prediction: a study of public listed companies in Malaysia," Managerial Finance, Emerald Group Publishing, vol. 37(6), pages 553-564, May.
    9. Abbas, Qaiser & Rashid, Abdul, 2011. "Modeling Bankruptcy Prediction for Non-Financial Firms: The Case of Pakistan," MPRA Paper 28161, University Library of Munich, Germany.

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