Firm Restructuring System in Korea: A Comparison of Firm Performance Between Policy Finance Institutes and Private Banks

Abstract

The performance of firm restructuring led by policy finance institutes in Korea was analysed using quantitative methods. Firm performance in terms of the probability of graduating from the restructuring process, profitability and financial soundness for restructuring firms managed by policy finance institutes was compared against those managed by private banks. Data analysis using the propensity score matching (PSM) and Heckman models found the following characteristics in the firm restructuring led by policy finance institutes in Korea. First, the probability of graduating from restructuring was statistically significantly lower in the firms managed by policy finance institutes. Second, the strength of restructuring in terms of material and human resources since the start of restructuring was statistically significantly stronger in firms managed by policy finance institutes. However, whether the policy finance institutes were the main creditors since the start of the restructuring process significantly reduced the firms’ sales. Nevertheless, it did not affect their profitability in a statistically significant manner. Considering that relatively more financial resources are injected into the restructuring firms managed by policy finance institutes, it can be concluded that the firm restructuring led by policy finance institutes is less efficient.

Regional Development Bank Competition: Evidence from Indonesia

“…It can be said that banks that can manage risk have higher trust from the public. This trust reduces promotional costs such as increasing interest rates and outreach to potential customers (Shin, 2022). This results in fewer costs and a more efficient bank.…”

“…Regional development banks have existed for a long time (Shin, 2022). Regional development banks, as holders of local finance, which has been provided for in Act No.l3 in 1962 on the principles of provision of Regional Development Banks, work as regional economic development to perform the local economic activity to improve people's lives, provides financing of development finance in the region, raise funds and to implement and save the cash area (holder/cash storage areas) in addition to running the banking business.…”

“…Suppose regional development banks can have many customers and more sophisticated technology (Missiame et al, 2021). In that case, regional development banks will be able to cut operational costs so that regional development banks can not only compete with other banks but also be more efficient (Shin, 2022). The aspect of efficiency is also one of the crucial factors that need to consider because it can affect the continuity of the bank's business (Faia et al, 2019;Islam et al, 2020;Trinugroho et al, 2018).…”