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Investment financing: evidence from Korea
Author(s) -
Choi Heejung,
Suh Jungwon
Publication year - 2017
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12143
Subject(s) - business , finance , capital structure , chaebol , debt , equity (law) , internal financing , monetary economics , external financing , debt financing , financial system , economics , corporate governance , political science , law
Abstract This study examines the relative importance of various forms of capital in financing investments by Korean firms. Our results from the seemingly unrelated regression ( SUR ) method indicate that, unlike U.S. firms, Korean firms rely substantially on cash holdings to finance investments. These results also suggest that Korean firms use long‐term debt more actively than equity issuance to finance investments. Subgroup analyses show that large firms and Chaebol‐affiliated firms use more long‐term debt but less equity issuance than comparison firms do, suggesting that debt capacity allows firms to reduce the use of equity issuance. However, there is little evidence that financing decisions are driven by information asymmetry. The results from the quantile regression ( QR ) method suggest that Korean firms tend to use debt capital more than they do equity capital at low and medium levels of investments, while their reliance on equity capital increases at high levels of investments.