Financial policy and corporate investment in imperfect capital markets : the case of Korea

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Financial policy and corporate investment in imperfect capital markets : the case of Korea, Volume 1

Author:	Dailami, Mansoor;	Collection Title:	Policy, Research and External Affairs working papers ; no. WPS 409
Country:	Korea, Republic of;	Date Stored:	1990/04/01
Document Date:	1990/04/30	Document Type:	Policy Research Working Paper
Language:	English	Major Sector:	Finance
Region:	East Asia and Pacific	Report Number:	WPS409
Sub Sectors:	Capital Markets Development	SubTopics:	Environmental Economics & Policies; International Terrorism & Counterterrorism; Economic Theory & Research; Banks & Banking Reform; Financial Intermediation
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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