Financial policy and corporate investment in imperfect capital markets : the case of Korea
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.
|Date of creation:||30 Apr 1990|
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