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Financial policy and corporate investment in imperfect capital markets : the case of Korea, Volume 1
 
Author:Dailami, Mansoor; Country:Korea, Republic of;
Date Stored:1990/04/01Document Date:1990/04/30
Document Type:Policy Research Working PaperSubTopics:Environmental Economics & Policies; International Terrorism & Counterterrorism; Economic Theory & Research; Banks & Banking Reform; Financial Intermediation
Language:EnglishMajor Sector:Finance
Region:East Asia and PacificReport Number:WPS409
Sub Sectors:Capital Markets DevelopmentCollection Title:Policy, Research and External Affairs working papers ; no. WPS 409
Volume No:1  

Summary: Central to the effectiveness of financial policies geared towards promoting real business investment is the interaction between corporations' financing and investment decisions. The objectives of this paper are twofold : 1) develop an integrated approach towards the problem of optimal corporate real investment and finance in the context of a financial model of a developing economy characterized by credit rationing, controlled banking sector and an organized equity market; and 2) apply the model to the nonfinancial corporate sector of the economy. The paper is organized as follows : Section I is the introduction; Section II describes the theoretical model of companies' optimal investment and financing behavior ( Tobin's Q approach ), but extended to incorporate some important tax and financial features of the economy; Section III discusses the estimation of the model, with annual data from 1963 to 1986; Section IV concludes with a brief discussion of some relevant policy implications and lessons.

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