Corporate Bankruptcy in Korea: Only the Strong Survive?

Paola Bongini (), Giovanni Ferri and Hongjoo Hahm

The Financial Review, 2000, vol. 35, issue 4, 31-50

Abstract: We analyze whether the build-up of financial vulnerabilities led listed Korean companies to bankruptcy. We find that pre-crisis leverage is systematically high for both poor performing/slow growing firms and for profitable/fast-growing firms. Pre-crisis leverage raises the probability of bankruptcy, which is lower for firms: (1) relying more on (renegotiable) bank credit; (2) with less inter-firm debt; and (3) having higher interest coverage ratios. Finally, none of these liquidity variables helps predict bankruptcies for chaebol-firms, suggesting that liquidity constraints are more stringent for non-chaebol. Thus, in a systemic crisis it is not only the strong/healthy that survive. Copyright 2000 by MIT Press.

Date: 2000
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