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The effect of the global financial crisis on corporate investment in Korea : From the perspective of costly external finance

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Title The effect of the global financial crisis on corporate investment in Korea
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Sub Title

From the perspective of costly external finance

Material Type Reports
Author(English)

Jeong, Daehee

Publisher

[Sejong]:Korea Development Institute

Date 2015-02
Series Title; No KDI Journal of Economic Policy / vol. 37(no. 1)
Pages 27
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Economic Conditions
Industry and Technology < Entrepreneurship
Holding Korea Development Institute: KDI School

Abstract

This paper considers the effect of global financial crisis on corporate investment in Korea. Especially, the crisis may constrain the firm-level investment as the negative shock to the credit supply unfolds dramatically. As Duchin et al. (2010) demonstrated, if the negative supply side effect is evident during the crisis period, the larger cash holdings before the crisis accumulated, the smaller the constraint to the corporate investment will be, or vice versa. In order to investigate the supply side effect of the crisis, we use firm-level financial data which includes Korean stock market listed firms, as well as small and medium enterprises. The corporate investment declined significantly after the crisis, even if we control the demand side effect such as contemporaneous capital productivity and cash flows. More importantly, the decline is positively and significantly related with the cash holdings before the crisis, implying that our data supports the negative effect of a credit supply shock. (The rest omitted)