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.

Keywords

Firm restructuring performance evaluation propensity score matching (PSM)Heckman model policy finance institutes

Get full access to this article

View all access options for this article.

References

Ahn

(2017). Analysis of the policy financing programs of bank-type public financial institutions—Focusing on KDB and KEXIM (Project Evaluation Report 17–20). National Assembly Budget Office of Korea (in Korean).

Bowman

E. H.

, Singh

, Useem

, & Bhadury

(1999). When does restructuring improve economic performance? California Management Review, 41(2), 33–54.

Carolan

, Mora

, & Singh

(2013). Trade dynamics in the East Asian miracle: A time series analysis of US–East Asia commodity trade, 1962–1992. Millennial Asia, 4(1), 87–108.

Flood

, Abbey

, Skordaki

, & Aber

(1995). The professional restructuring of corporate rescue: Company voluntary arrangements and the London approach (Research Report 45). The Chartered Association of Certified Accountants.

Guthrie

J. P.

, & Datta

D. K.

(2008). Dumb and dumber: The impact of downsizing on firm performance as moderated by industry conditions. Organization Science, 19(1), 108–123.

Handouyahia

, Haddad

, & Eaton

(2013). Kernel matching versus inverse probability weighting: A comparative study. International Scholarly and Scientific Research and Innovation, 7(8), 1218–1233.

Heckman

(1979). Sample selection bias as a specification error. Econometrica, 47(1), 153–61.

Holmstrom

, & Kaplan

S. N.

(2001). Corporate governance and merger activity in the United States: Making sense of the 1980s and 1990s. Journal of Economic Perspectives, 15(2), 121–144.

Kang

(2004). Success factors of the Korean corporate workouts (in Korean). KDI Journal of Economic Policy, 26(1), 71–104.

10.

Kim

(2016). The analysis of 99 restructuring firms that Korea development bank has bonds—Is voluntary agreement preemptive means of restructuring? (in Korean). Biannual Journal of Good Corporate Governance, 52, 46–64.

11.

Kim

B.-Y.

, & Park

(2016). Financial systems and enterprise restructuring in Eastern Europe. Eastern European Economics, 54(6), 503–520.

12.

Kim

M. C.

, Hyunhee

, & Kyungah

(2013). Restructure management performance of firms and the factors of affecting in restructure performance (in Korean). Korean International Accounting Review, 50, 1–20.

13.

Kwon

G. H.

, & Cho

D. S.

(2003) Corporate restructuring: Critical review of antecedents and consequences (in Korean). Korean Management Review, 32(6), 1533–1569.

14.

Lee

C. H.

, Lee

, & Lee

(2002). Chaebols, financial liberalization and economic crisis: Transformation of quasi-internal organization in Korea. Asian Economic Journal, 16(1), 17–35.

15.

Ligang

, & Yang

(2005). Impacts of restructuring on firm performance in China (Vol. 2). Social Sciences in China.

16.

Nam

, & Jeong

(2015). The effect of government-owned banks on the restructuring of marginal large enterprises (in Korean). KDI Economic Outlook, 32(2), 53–60.

17.

Park

S. I.

, Kim

C. J.

, & Shin

H.-D.

(2011). Workout effects on profitability and cash, flows (in Korean). Korean Corporation Management Review, 18(4), 63–80.

18.

Perry

, & Shivdasani

(2005). Do boards affect performance? Evidence from corporate restructuring. The Journal of Business, 78(4), 1403–1432.