The political economy of financial structure of Korean firms

Sanghack Lee and Kiwoong Cheong ()
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Kiwoong Cheong: Kookmin University, South Korea

Journal of Developing Areas, 2010, vol. 43, issue 2, 221-232

Abstract: The high indebtedness of Korean firms is viewed as one of major causes for the financial (currency) crisis of Korea in 1997. This paper examines empirically the political economy underlying the financial structure of Korean firms. Specifically, this paper estimates the size of rents generated in Korean financial markets through financial repression during 1971 – 1991. The size of the rent shared by politicians and business sectors proves to be in the range of three to eight percent of Gross Domestic Product of Korea during the period. This paper also shows that firm size has been an important determinant for the financial structure of Korean firms. However, the role of the firm size as the determinant for financial structure has decreased after the financial crisis, suggesting that the tie between politicians and business has been weakened.

Keywords: Political Economy; Financial Structure of Korean Firms; Financial Crisis; Rent (search for similar items in EconPapers)
JEL-codes: D72 G18 G30 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.43:year:2010:issue2:pp:221-232

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