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Financial policy and corporate investment in imperfect capital markets : the case of Korea

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  • Dailami, Mansoor

Abstract

Central to the effectiveness of financial policies geared towards promoting real business investment is the interaction between corporations'financing and investment decisions. The objectives of this paper are twofold : 1) develop an integrated approach towards the problem of optimal corporate real investment and finance in the context of a financial model of a developing economy characterized by credit rationing, controlled banking sector and an organized equity market; and 2) apply the model to the nonfinancial corporate sector of the economy. The paper is organized as follows : Section I is the introduction; Section II describes the theoretical model of companies'optimal investment and financing behavior ( Tobin's Q approach ), but extended to incorporate some important tax and financial features of the economy; Section III discusses the estimation of the model, with annual data from 1963 to 1986; Section IV concludes with a brief discussion of some relevant policy implications and lessons.

Suggested Citation

  • Dailami, Mansoor, 1990. "Financial policy and corporate investment in imperfect capital markets : the case of Korea," Policy Research Working Paper Series 409, The World Bank.
    • Handle: RePEc:wbk:wbrwps:409
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    Citations

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    Cited by:

    1. Dailami, Mansoor*Giugale, Marcelo, 1991. "Reflections on credit policy in developing countries : its effect on private investment," Policy Research Working Paper Series 654, The World Bank.
    2. Chuppe, Terry M. & Atkin, Michael, 1992. "Regulation of securities markets : some recent trends and their implications for emerging markets," Policy Research Working Paper Series 829, The World Bank.
    3. Riccardo Faini & Jaime de Melo, 2015. "Adjustment, Investment and the Real Exchange Rate in Developing Countries," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 6, pages 137-165, World Scientific Publishing Co. Pte. Ltd..
    4. Dailami, Mansoor & Kim, E. Han, 1991. "The effects of debt subsidies on corporate investment behavior," Policy Research Working Paper Series 727, The World Bank.
    5. Dailami, Mansoor & Atkin, Michael, 1990. "Stock markets in developing countries : key issues and a research agenda," Policy Research Working Paper Series 515, The World Bank.

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