Declining Fixed Investment and Increasing Financial Investment of Korean Corporations
This paper aims to determine factors causing the stagnation of Korean firms’ fixed investment after the global financial crisis, using panel data for the period of 1999-2016. Fixed investment remained sensitive to cash flow and Tobin’s q although their effects decreased after the global financial cr...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Korea Institute for International Economic Policy
2019-12-01
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| Series: | East Asian Economic Review |
| Subjects: | |
| Online Access: | http://dx.doi.org/10.11644/KIEP.EAER.2019.23.4.367 |
| _version_ | 1817980549002690560 |
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| author | Daehwan Kim Sunhee Kwon Jai-Won Ryou |
| author_facet | Daehwan Kim Sunhee Kwon Jai-Won Ryou |
| author_sort | Daehwan Kim |
| collection | DOAJ |
| description | This paper aims to determine factors causing the stagnation of Korean firms’ fixed investment after the global financial crisis, using panel data for the period of 1999-2016. Fixed investment remained sensitive to cash flow and Tobin’s q although their effects decreased after the global financial crisis. A decreasing trend of cash flow and an increase in Tobin’s q since the early 2000’s imply that the worsening cash flow was a major factor behind the sluggish investment after the crisis. Meanwhile, debt-equity ratio remained significant for non-chaebol affiliated firms, reflecting disparity in access to external financing. Volatility of stock returns also became insignificant after the crisis, casting doubt on the argument that uncertainty was a major factor contributing to the decline of fixed investment. Analysis of financial investment confirmed the significant effect of cash flow, larger than that on financial investment than on fixed investment. In particular, debt repayment and other financial investment, except share repurchase, were sensitive to cash flow. However, the substitution of fixed investment by financial investment is a consequence, rather than a cause of declining fixed investment. |
| first_indexed | 2024-04-13T22:54:58Z |
| format | Article |
| id | doaj.art-62a446b8e5a44308ba34515823770313 |
| institution | Directory Open Access Journal |
| issn | 2508-1640 2508-1667 |
| language | English |
| last_indexed | 2024-04-13T22:54:58Z |
| publishDate | 2019-12-01 |
| publisher | Korea Institute for International Economic Policy |
| record_format | Article |
| series | East Asian Economic Review |
| spelling | doaj.art-62a446b8e5a44308ba345158237703132022-12-22T02:26:04ZengKorea Institute for International Economic PolicyEast Asian Economic Review2508-16402508-16672019-12-0123435337910.11644/KIEP.EAER.2019.23.4.367Declining Fixed Investment and Increasing Financial Investment of Korean CorporationsDaehwan Kim0Sunhee Kwon1Jai-Won Ryou2Konkuk UniversityDaejin UniversityKonkuk UniversityThis paper aims to determine factors causing the stagnation of Korean firms’ fixed investment after the global financial crisis, using panel data for the period of 1999-2016. Fixed investment remained sensitive to cash flow and Tobin’s q although their effects decreased after the global financial crisis. A decreasing trend of cash flow and an increase in Tobin’s q since the early 2000’s imply that the worsening cash flow was a major factor behind the sluggish investment after the crisis. Meanwhile, debt-equity ratio remained significant for non-chaebol affiliated firms, reflecting disparity in access to external financing. Volatility of stock returns also became insignificant after the crisis, casting doubt on the argument that uncertainty was a major factor contributing to the decline of fixed investment. Analysis of financial investment confirmed the significant effect of cash flow, larger than that on financial investment than on fixed investment. In particular, debt repayment and other financial investment, except share repurchase, were sensitive to cash flow. However, the substitution of fixed investment by financial investment is a consequence, rather than a cause of declining fixed investment.http://dx.doi.org/10.11644/KIEP.EAER.2019.23.4.367stagnant fixed investmentfinancial investmentcash flowtobin’s qglobal financial crisis |
| spellingShingle | Daehwan Kim Sunhee Kwon Jai-Won Ryou Declining Fixed Investment and Increasing Financial Investment of Korean Corporations East Asian Economic Review stagnant fixed investment financial investment cash flow tobin’s q global financial crisis |
| title | Declining Fixed Investment and Increasing Financial Investment of Korean Corporations |
| title_full | Declining Fixed Investment and Increasing Financial Investment of Korean Corporations |
| title_fullStr | Declining Fixed Investment and Increasing Financial Investment of Korean Corporations |
| title_full_unstemmed | Declining Fixed Investment and Increasing Financial Investment of Korean Corporations |
| title_short | Declining Fixed Investment and Increasing Financial Investment of Korean Corporations |
| title_sort | declining fixed investment and increasing financial investment of korean corporations |
| topic | stagnant fixed investment financial investment cash flow tobin’s q global financial crisis |
| url | http://dx.doi.org/10.11644/KIEP.EAER.2019.23.4.367 |
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