Financial Structure of Firms in Oligopoly Evidence from Korea

Kiwoong Cheong and Sanghack Lee
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Kiwoong Cheong: Keimyung University

Korean Economic Review, 1999, vol. 15, 369-380

Abstract: This paper examines the effect of the product market structure on firms' financial structure. Following Brander and Lewis (1986), several recent papers show that a firm can use leverage to favorably improve its position in the product market. The present paper constructs the model that exhibits the linkage between the product market structure and financial structure of firms. The model is tested empirically using data taken from Korean firms. The empirical test finds that, contrary to theoretical predictions, debt levels of Korean firms are nega-tively correlated to market concentration. Combined with the test result of Cheong and Lee (1999), this result indicates that the Brander-Lewis hypothesis does not hold in Korea.

Keywords: Finamcial Structure; oligopoly; Korea; Brander-Lewis hypothesis (search for similar items in EconPapers)
JEL-codes: G2 L1 (search for similar items in EconPapers)
Date: 1999
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