Internal and External Determinants of Capital Structure in Large Korean Firms

We examine the internal and external determinants of the capital structure of large Korean companies during the 2010-2017 period. Using total, short-term, and long-term debt ratios as proxies for capital structure, we found that both profitability and liquidity affect leverage negatively and signifi...

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Bibliographic Details
Published in:Global business and finance review 2019, 24(3), , pp.79-96
Main Authors: Tulcanaza Prieto, Ana Belen, Lee, Younghwan
Format: Article
Language:English
Subjects:
Capital structure
Collateral
Equity
Financial performance
Hypotheses
Investment policy
Macroeconomics
Managers
Profits
Retained earnings
Stockholders
Variables
경영학
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Summary:We examine the internal and external determinants of the capital structure of large Korean companies during the 2010-2017 period. Using total, short-term, and long-term debt ratios as proxies for capital structure, we found that both profitability and liquidity affect leverage negatively and significantly. These results are consistent with the experience of other nations, such as Malaysia, Pakistan, and Vietnam. We also show that both asset tangibility and firm size have a positive effect on long-term borrowings but a negative effect on short-term borrowings. These findings are aligned with observations from Pakistani and Vietnamese firms. The external determinants, however, show little statistical significance. Using an empirical approach simultaneously including both firm-specific and external determinants that influence the debt-equity choice for large companies listed on the Korea Exchange, our study complements the literature on corporate finance. For future research, we suggest including a dummy variable for structural changes (e.g. the world financial crisis) and measures of leverage dispersion and industry concentration to increase the power of the statistical models.
ISSN:1088-6931
2384-1648
DOI:10.17549/gbfr.2019.24.3.79