Determinants of Corporate Capital Structure in Korea

Abstract

This study empirically analyzed the flows and determinants of the capital structure of Korean listed firms from 1999 to 2013. The results showed that the effect of firm size, growth rate of sales, and profitability on leverage was consistent with that of the studies conducted before the financial crisis of 1997, while the effect of tangible fixed assets and non-debt tax shields on leverage has changed to a significantly positive relationship, contrary to the pre-financial crisis studies. Specifically, firm size and growth rate of sales showed a significantly positive relationship with leverage, while profitability showed a significantly negative relationship with leverage. Tangible fixed assets showed a negative relationship with short-term liabilities and a positive relationship with long-term liabilities. Moreover, depreciation, which represents the size of investment cost along with tangible fixed assets, showed a significantly positive relationship with leverage. Regarding chaebols (the major South Korean family-owned business conglomerates), even the 6th?30th largest chaebol groups maintained a high level of debt ratio, and the strength of the chaebol variable as a determinant of capital structure in Korea has decreased compared to the past. Furthermore, the study applied the panel data analysis method to Korean public corporations for the period of 2009?2013, and it was found that firm size and profitability had a significant relationship with leverage, while growth rate of sales did not. That is, firm size was significantly positively related with leverage, while profitability was significantly negatively related with debt ratios. In addition, it was found that the 1st?5th largest chaebols, the 6th?30th largest chaebols, and market-based public corporations have recently decreased short-term debt but increased long-term debt.