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Dynamics of capital structure : The case of Korean listed manufacturing companies

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  • Dynamics of capital structure
  • Kim, Hyesung; Heshmati, Almas; Aoun, Dany
  • University of Washington


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Title Dynamics of capital structure
Similar Titles
Sub Title

The case of Korean listed manufacturing companies

Material Type Articles
Author(English)

Kim, Hyesung; Heshmati, Almas; Aoun, Dany

Publisher

[Seattle]:University of Washington

Date 2006
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Financial Policy
Industry and Technology < Manufacturing
Holding University of Washington

Abstract

In this paper, we develop a model of dynamic capital structure choice based on sample of Korean manufacturing firms and estimate the unobservable optimal capital structure using a wide range of observable determinants. Unbalanced panel data of Korean listed firms for the period 1985 to 2002 is used. In addition to identifying and estimating the effects of the determinants of capital structure, we take into consideration some Korea-specific features, such as the structural break before and after the financial crisis and firms’ affiliation to chaebol business groups. Our results indicate that the optimal capital structure has been affected by the financial crisis. While the results suggest that chaebol-affiliated firms have higher optimal level of leverage and adjust their capital structure faster than non-chaebol firms, firms’ leverage may be associated with factors other than chaebol-affiliation, such as size, profitability and growth opportunity.