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The impact of leverage and overinvestment on project financing: evidence from South Korea

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  • Eun Joo Cho
  • Jae Hong Lee
  • Jong Sung Park

Abstract

This study analyzes relationship between leverage and project financing payment guarantee using 337 firm-year observations of the listed firms on the Korean stock market from 2008 to 2017. We find that the higher the debt ratio, the greater the tendency to make risky investments as project financing payment guarantee. In addition, the relationship between the debt ratio and the project financing payment guarantee is more significant when the manager’s overinvestment tendency is greater. Despite the controversy surrounding the accounting methods of the construction companies since the introduction of K-IFRS, we report that project financing guarantees are not yet properly recognized.

Suggested Citation

  • Eun Joo Cho & Jae Hong Lee & Jong Sung Park, 2021. "The impact of leverage and overinvestment on project financing: evidence from South Korea," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 28(6), pages 723-745, November.
    • Handle: RePEc:taf:raaexx:v:28:y:2021:i:6:p:723-745
    DOI: 10.1080/16081625.2019.1584761
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