IMPACT OF FINANCIAL CRISES ON THE DYNAMICS OF CAPITAL STRUCTURE: EVIDENCE FROM KOREAN LISTED COMPANIES

Tsoy Lyubov and Almas Heshmati ()
Additional contact information
Tsoy Lyubov: Department of Economics, Room GN702, Sogang University, 35 Baekbeom-ro (Sinsu-dong #1), Mapo-gu, Seoul 04107, Korea

The Singapore Economic Review (SER), 2023, vol. 68, issue 03, 867-898

Abstract: This study examines the impact of the 1997 Asian financial crisis and the 2008 Global economic crisis on the capital structures of Korean non-financial listed companies. Using a panel data covering 1,159 Korean listed non-financial firms from 10 industrial sectors over a 31-year period (1985–2015), this study investigates the patterns of firms’ capital structures before and after the crises and identifies their speeds of adjustment toward the optimal leverage. This study finds different effects of the two crises on both capital structures and adjustment speeds. The average debt ratio fell significantly after the 1997 Asian financial crisis. The distance between the optimal and the observed debt ratios shrank after the Asian crisis, while the speed of adjustment increased two-fold. Unlike the Asian financial crisis, the global economic crisis of 2008 had a positive effect on companies’ debt ratios and the speeds of adjustments toward the optimal leverage. Our empirical analysis shows that, on average, the Korean non-financial listed companies decreased their debt ratios over the entire period of observation, with the leverage being the highest before the Asian financial crisis and lowest after the global economic crisis. Our results also show that the debt ratios of Korean chaebols were higher than that of non-chaebols. Moreover, we find that the high level of leverage of Korean firms was associated with tangible assets, income variability, size and age of the firm, non-debt tax shield and uniqueness.

Keywords: Capital structure; optimal leverage; speed of adjustment; Korean listed companies; panel data; financial crises; dynamic model; chaebols (search for similar items in EconPapers)
JEL-codes: C33 C51 D21 E22 G32 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590819500498
Access to full text is restricted to subscribers

Related works:
Working Paper: Impact of Financial Crises on Dynamics of Capital Structure: Evidence from Korean Listed Companies (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:68:y:2023:i:03:n:s0217590819500498

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590819500498

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().