Investigations on the Financial Determinants of Profitability for Korean Chaebol Firms by applying Conditional Quantile Regression (CQR) Model

Abstract

This study investigated one of the contemporary issues in the Korean capital market and two hypotheses of concern were tested on the financial determinants of profitability for the firms belonging to the Korean chaebols during the era of the post-global financial turmoil. The first hypothesis applying conditional quantile regression (CQR) estimation provided the evidence that leverage ratio, fixed asset utilization, and foreign ownership among the nine quantitative explanatory variables, had overall statistical significance relative to the book-valued profitability measure, while additional variables such as a firm's size, fixed and a proxy for the type of exchange market showed their strong impacts on the market-valued profitability indicator. Concerning the formulated 'extended' DuPont system, only two components of EBITDAEBIT and EMULTIPLIER revealed their prominent influence on ROE (Return on Equity) over the two tested periods (the years 2008 and 2012).

Democracy and Economic Growth

“…The findings are in support of the conventional rationale theorized in economics and finance: A firm may increase its value by hosting more cash inflow from foreign investors who have generally fewer financial constraints to access the credit market in the capital markets. Kim (2014) presented an empirical result that there was a positively significant effect of a proportion of foreign ownership on a firm's profitability. Specifically, higher profitability was likely to arise from superior management skills inclusive of utilization of asymmetric information which foreign (institutional) investor may possess.…”

Determinants of Foreign Direct Investment: A Systematic Review of the Empirical Studies

“…Kim and Yang (2014) analysed the determinants of FDI inflows to Korea over the period from 1995 to 2012 using the panel quantile regression model. They found that GDP, employment and human resource education levels of the host country were significant determinants of FDI inflows only when the level of the inflow was low.…”