Financial market reforms and corporate financing in Korea
Following the Asian financial crisis of 1997, the Korean economy experienced radical structural reforms, particularly in the financial sector. In this environment, Korea's corporate sector, once characterized by a high degree of leverage, turned to the capital market for financing, while banks diversified their lending targets. Our analysis of large firm-level data finds that, following the crisis, the corporate financing behaviour of both chaebol-affiliated and independent firms became more responsive to such factors as return on assets, cash flows and credit rating. On the lenders' side, the tighter prudential enforcement of the 1988 Basel capital adequacy requirements limited the supply of bank loans. We conclude that both the changed corporate incentives in an environment of greater market discipline and the improved prudential supervision explain much of the more diversified pattern of Korean corporate financing practices in the post-crisis period.
Sources of Corporate Financing and Economic Crisis in Korea: A Micro-Evidence
Using the firm-level data set, the paper attempts to examine the dynamic patterns in the allocation of credit across firms in recent Korea. In particular, the paper examines the dynamic patterns in the allocation of credit across large and small firms before and after the crisis. The data suggest that large firms, to some extent, are leaving banks and going to the capital market for their financing after the crisis. The data also suggest that profitable small firms are gaining easier access to the credit from financial institutions after the crisis. Is this shift (in the allocation of bank credit from large firms to small firms) due to lenders' choice or due to borrowers' changed incentives? The paper suggests that the improved lending practices of banks, at least partially, contributed to this shift of bank credit from large firms to small firms.
Hyundai Crisis: Its Development and Resolution
We attempt to trace the Hyundai crisis back to its roots with the following questions in mind. What actions taken by the Hyundai Group since its birth contributed to Hyundai's post-1997 afflictions and to the split and the subsequent fall of the parent group? What changes in the corporate environment, in particular, the changes in business-government relationships, brought on by the national financial crisis of 1997 determined the Hyundai Group's fate? The Hyundai crisis was ultimately a test on whether the old business- government relationship could survive the new market environment generated by the 1997 financial crisis. In spite of the government's indecision and inconsistency, however, it was the government itself which eventually yielded and accepted the new market environment it had helped to create after 1997. The government reluctantly transferred the control rights of Hyundai Construction and Hynix Semiconductor to creditor banks via debt-equity swaps starting from March 2001.