Capital structure in South Korea: A Quantile Regression Approach

Abstract

This paper analyzes capital structure in South Korea from 1991 until 1999. The paper makes use of quantile regression methods to explore the changing distribution of debt-capital ratios across firms and over time. We find clear evidence of heterogeneity in the capital structure of firms. There is also strong evidence of heterogeneity in the determinants of capital structure choice. The size of the firm and its rate of growth have a positive impact on debt at low values of the debt ratios, but a negative impact at high values of the ratios. By contrast, the proportion of net fixed assets has a negligible impact at low values of the debt ratios, but a significantly positive impact at medium or high values of the ratios. The observed non-linearities in the determinants of capital structure are consistent with an agency cost theory of capital structure, and with both a non-negativity constraint and an upper bound on debt.