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.
Analysis: The Agenda 2007 Proposals: Evolution or Revolution?
On 10 February 2004 the Commission published its proposal for the financial perspective 2007-2013. A week later it adopted the third report on economic and social cohesion. These two documents form the basis of the so-called ‘Agenda 2007 reforms’. They will be the greatest challenge for the enlarged EU after the intergovernmental conference, since they will determine the financial basis for EU policy-making until the middle of the next decade. The Agenda 2007 proposals certainly hint at courageous reforms, because they place a previously unheard-of emphasis on performance and quality. Under the proposals, structural operations should generate value for money, and the funds should focus on projects which generate added value at a European level. Overall the Commission’s proposals point in the right direction, because they balance, on the one hand, solidarity for the new Member States and weak regions in the old Member States with, on the other hand, investments in future tasks. Moreover, they constitute a paradigm shift. For the first time, the Common Agricultural Policy will not be the dominant expenditure category. Now it is up to the Member States to examine the proposals politically and find a compromise between sometimes very divergent interests. It is to be hoped that, during the debate over expenditure limits and division of funds, national interests do not outweigh European interests.