Global Financial Imbalance: Firm-Level Evidence from Korea

53 Pages Posted: 1 Oct 2020

See all articles by Tae Soo Kang

Tae Soo Kang

Korea Institute for International Economic Policy

Kyunghun Kim

Korea Institute for International Economic Policy

Yuri Kim

Korea Institute for International Economic Policy

Date Written: may 15, 2020

Abstract

Since the global financial crisis, low interest rates have continued throughout the world. However, financial imbalance has deepened as much of the expanded investment during low interest rates did not lead to increased productivity. This study focused on the increase of marginal firms as a result of the adverse effects of financial imbalances on firms. The marginal firms were identified based on the company's financial statement, and the share of marginal firms by country was compared and analyzed using Worldscope data. As a detailed analysis on the marginal firms, the impact of borrowing interest rate on the possibility of becoming a marginal company was analyzed in the case of Korea with KED data. According to the international comparison, East Asia including Korea, China and Japan has shown a lower share of marginal companies than Europe, South Asia and Latin America. Empirical results through Panel Logit with Sector Fixed Effect Model show that the borrowing rate has a negative correlation with the probability the company will become a marginal company in the case of Korea. However, the impact of an increase in borrowing rates on the likelihood of becoming a marginal company depends on the degree of financial vulnerability. Specifically, an increase in the borrowing rate has a greater impact on the possibility to become ICR<1 in the companies with higher financial vulnerability indexes.

Keywords: Finance, Global Financial Imbalance, Corporate Finance, Financial Statistics, Zombie Company

Suggested Citation

Kang, Tae Soo and KIim, Kyunghun and Kim, Yuri, Global Financial Imbalance: Firm-Level Evidence from Korea (may 15, 2020). KIEP No. Working Paper 20-02, Available at SSRN: https://ssrn.com/abstract=3700754 or http://dx.doi.org/10.2139/ssrn.3700754

Tae Soo Kang (Contact Author)

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Kyunghun KIim

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Yuri Kim

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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