A Comparison of Capital Structure Determinants: The United States and The Republic of Korea

Abstract

This paper investigates the determinants of the capital structure of large corporations headquartered in the United States and Korea. We consider five explanatory variables: profit, company size, non‐debt tax shields, growth, and business‐risk, along with several industry indicator variables as independent variables and examine, for each country, the relationship to market value based leverage ratio. With our rigid criteria for inclusion in the study, we study the top thirteen companies (by size) in each of seven industries. The majority of our findings indicate that we can generalize to Korea what has been found for Japanese companies/industries relative to the U.S.

Further Investigations on the Financial Attributes of the Firms listed in the KOSDAQ Stock Market

“…This explanatory variable showed its consistent effect on the level of the leverage for the firms in Korea, as upmost and/or only significant element, as in [39]. the primary implications on the negative relationship with the leverage, it may still be theoretically reasonable to interpret this phenomenon which supports the well-known Myers' Pecking order theory [40]: There may be a preference for internally generated funds (as internal financing) over the external financing, and then, debt may be preferred over equity if external financing is needed.…”

“…The common equity at market value was, as usual, calculated by multiplying the closing market price of common stock on the last trading day by total number of common shares outstanding at the fiscal year-end of each sample firm during the period of 2005 to 2010. Given the historical development of Korean economy, the market value based debt ratio, may be more representative proxy as the DV for the Korean firms including the KOSDAQ listed ones, in which substantial differences as in Japan, may still exist between the market and book value of real assets such as real estate, as also presented in [27] and [28].…”

Democracy and Economic Growth

“…Moreover, the constant term showed its persistent importance at the 0.1% or 1% significance level, across most regression models (i.e., 10 of the 14 regression models from regression 7 to 20). This may also support adopting additional explanatory variables to explain the dependent variable, since the phenomenon can arise from the average effect of the omitted variables, as presented in Kim & Berger (2008).…”

A Review on the Financial Profile of Profitability for the KOSDAQ Listed Firms Headquartered in 'Chungcheong' province in the Republic of Korea

“…For instrance, one of the prevalently studied subjects in the finance literature seemed to be the issue of capital stucture across all types of capital markets such as advanced and emerging ones. [6,7,8] The paper consists of five sections as follows: Coupled with the first section as an introduction one elaborating on the primary motivations for this particular study, the second section was presented to review the previous literature focusing on the issues of the proposed determinants of a firm's profitability and other related financial subjects including the capital structure, which, had also frequently been referred by many researchers in finance [10] as major researches on the subjects. Next, illustrated were the presentation on the data collection and major methodologies applied to the three hypothesis tests.…”