The impact of leverage and overinvestment on project financing: evidence from South Korea

Eun Joo Cho, Jae Hong Lee and Jong Sung Park

Asia-Pacific Journal of Accounting & Economics, 2021, vol. 28, issue 6, 723-745

Abstract: This study analyzes relationship between leverage and project financing payment guarantee using 337 firm-year observations of the listed firms on the Korean stock market from 2008 to 2017. We find that the higher the debt ratio, the greater the tendency to make risky investments as project financing payment guarantee. In addition, the relationship between the debt ratio and the project financing payment guarantee is more significant when the manager’s overinvestment tendency is greater. Despite the controversy surrounding the accounting methods of the construction companies since the introduction of K-IFRS, we report that project financing guarantees are not yet properly recognized.

Date: 2021
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DOI: 10.1080/16081625.2019.1584761

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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