Financial Development and Investment in Korea

Young-Jin Ro, In-Chul Kim and Jin Woong Kim

Emerging Markets Finance and Trade, 2017, vol. 53, issue 3, 534-543

Abstract: In this study, we investigate whether financial development could have a positive effect on the real economy in Korea through the investment channel. After deriving an investment function in which a firm’s investment is subject to financial restriction, we analyze whether financial development has reduced a firm’s financial restriction and analyze whether financial development has reduced a firm’s financial restriction by expanding available external financing that the firm faces. Using firm-level data in Korea from 1994 to 2011, we find that financial development affects a firm’s investment by reducing the firm’s financial restrictions. However, the effects of financial development on a firm’s financial restrictions are varied by industry or firm size. We also find that the financial crisis could deteriorate the effect of financial development on corporate investment.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:53:y:2017:i:3:p:534-543

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DOI: 10.1080/1540496X.2015.1095562

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