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.

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A B S T R A C TWe examine commodities and macroeconomic factors of the Korean' and Japanese' stock market performance during the period of 1993-2017. Using both Kospi and Nikkei 225 as proxy for stock market performance, we designed a Vector Error Correction Model (VECM) which integrates the econometric model in the short-and long-run. We found that the Korean and Japanese stock market reflects both macroeconomic variables and commodity prices on stock price indices. Our results reveal that each stock market index, GDP growth, inflation rate, interest rate, exchange rate, crude oil WTI price, and gold price perform a cointegration in the long-term, suggesting that Kospi and Nikkei 225 are corrected in -19.6% and -39.6% in each quarter, respectively. In addition, GDP growth, interest rate, exchange rate, oil price, and gold price affect the Kospi short-run performance, while GDP growth, interest rate, and gold price affect Nikkei 225 in the short-term. Using impulse-response function and the variance decomposition, we identified that the most significant impulse on each stock market index is its own shock, and its magnitude declines from the short-to the long-run. Our results are mostly consistent with the experience of other countries, especially Turkey and India, meaning the stock market index has been particularly affected by its own past prices. Our paper complements the literature of corporate finance by comparing the determinants of stock market performance of two Asian countries, including different robustness tests to explain the effect on Kospi and Nikkei 225 of each independent variable. For future research, the authors suggest to include a dummy variable for structural changes to increase the power of the model.