In this paper, the interest coverage ratio(ICR) is utilized to: assess the risks posed by corporate sector distress, determine the share, extent, and traits of distressed firms, and draw implications for restructuring.
Despite being in healthy financial shape on average, the proportion of Korean firms that are ICR and debt-ratio distressed has been rising, elevating downside risk. There are thus concerns that the corporate sector is becoming more vulnerable to external shocks.
ICR distressed firms in Korea are found to be persistently and chronically so, with low profitability akin to that of delisted firms. Further, their financial soundness is quite poor, with the share of borrowings, and in particular short-term borrowings, relatively high. In spite of this, distressed firms manage to stay afloat by utilizing their typically large share of real estate holdings as collateral to obtain capital and avoid falling into arrears.
Aggressive restructuring and thorough monitoring of chronically ICR distressed firms is called for to promote economic efficiency and dynamism. Alongside this, credit-based lending will have to supplant collateral-based lending practices, which bring about economic inefficiencies and hamper corporate restructuring. Finally, while financial authorities should grant incentives to induce voluntary restructuring, supervision needs to be streng- thened by having financial institutions tighten corporate credit risk evaluation, centered on cash flow, and by reining in firms' non-essential real estate investment.
기업부문 부실 분석과 구조조정에의 시사점
|Series Title; No||KIF 연구보고서 / 2010-04|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||한국금융연구원; KDI 국제정책대학원|