Investment Financing: Evidence from Korea

38 Pages Posted: 5 Apr 2017

See all articles by Heejung Choi

Heejung Choi

Korea University

Jungwon Suh

Sungkyunkwan University (SKKU)

Date Written: April 2017


This study examines the relative importance of various forms of capital in financing investments by Korean firms. Our results from the seemingly unrelated regression (SUR) method indicate that, unlike U.S. firms, Korean firms rely substantially on cash holdings to finance investments. These results also suggest that Korean firms use long‐term debt more actively than equity issuance to finance investments. Subgroup analyses show that large firms and Chaebol‐affiliated firms use more long‐term debt but less equity issuance than comparison firms do, suggesting that debt capacity allows firms to reduce the use of equity issuance. However, there is little evidence that financing decisions are driven by information asymmetry. The results from the quantile regression (QR) method suggest that Korean firms tend to use debt capital more than they do equity capital at low and medium levels of investments, while their reliance on equity capital increases at high levels of investments.

Keywords: Investment financing, Pecking order, Seemingly unrelated regression, Quantile regression

Suggested Citation

Choi, Heejung and Suh, Jungwon, Investment Financing: Evidence from Korea (April 2017). Accounting & Finance, Vol. 57, pp. 147-184, 2017. Available at SSRN: or

Heejung Choi (Contact Author)

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

Jungwon Suh

Sungkyunkwan University (SKKU) ( email )

206 International Hall
Seoul 110-745, 110-745
Korea, Republic of (South Korea)

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