Sources of Corporate Financing and Economic Crisis in Korea: A Micro-evidence

Using the firm-level data set, this paper attempts to examine the dynamic patterns in the allocation of credit across firms in Korea. Supposedly, in Korea, the economic crisis in 1997 had a significant impact on the pattern in the allocation of credit across firms. In particular, this paper aims to examine these dynamic patterns in the allocation of credit across large and small firms after the crisis. The paper suggests that large firms, to some extent, are leaving banks and going to the capital market for their financing after the crisis. The paper also suggests that profitable small firms are gaining easier access to credit by financial institutions after the crisis. There has been a shift in the allocation of bank credit from large firms to small firms. Is this shift due to lenders’ choice or due to borrowers’ changed incentives? The paper suggests that the improved lending practices of banks, at least partially, contributed to this shift of bank credit from large firms to small firmssources of corporate financing, economic crisis, firm size

Sources of Corporate Financing and Economic Crisis in Korea: A Micro-evidence

Using the firm-level data set, the paper attempts to examine the dynamic patterns in the allocation of credit across firms in recent Korea. In particular, the paper examines the dynamic patterns in the allocation of credit across large and small firms before and after the crisis. The data suggest that large firms, to some extent, are leaving banks and going to the capital market for their financing after the crisis. The data also suggest that profitable small firms are gaining easier access to the credit from financial institutions after the crisis. Is this shift (in the allocation of bank credit from large firms to small firms) due to lenders' choice or due to borrowers' changed incentives? The paper suggests that the improved lending practices of banks, at least partially, contributed to this shift of bank credit from large firms to small firms.

Bankruptcy Policy Reform and Total Factor Productivity Dynamics in Korea

Using the firm level panel data, obtained from the period between during , this study shows that the failing firms, accepted in the court-administered rehabilitation procedures after the post-crisis bankruptcy reform in Korea, had experienced less persistent problems in the pre-bankruptcy Total-Factor-Productivity (TFP) performances than those before the reform. The most crucial element of the post-crisis reform in the post-crisis court-administered bankruptcy system is the implementation of an economic efficiency criterion, whereas the pre-reform system benefited failing firms deemed as having high social value and prospects for rehabilitation. The new system removes the possibilities for interested parties to oppose the exit of the firms without economic values. Then, to get an idea of how the bankruptcy policy reform would affect the performance of aggregate TFP, we assess the role of the creative destruction process of entry and exit in total factor productivity growth utilizing plant level panel data in the Korean manufacturing sector during the 1990-98 period. For this purpose, we document the plant entry and exit rates, examine the dynamic relationship between plant turnovers and plant productivity, and quantify the contribution from entry and exit to productivity growth. We conclude that, for sustained total factor productivity growth, it is important to establish policy or institutional environment where efficient businesses succeed and inefficient businesses fail.