Corporate Bankruptcy in Korea: Only the Strong Survive?


  • We wish to acknowledge Jung-bum Wee of the Korea Economic Research Institute for his kind assistance in data compilation. In addition, we would like to thank Constantijn Claessens, Jack Glen, Patrick Honohan, Tae Soo Kang, Masahiro Kawai, Leora Klapper, Klaus Lorch and Tom Noe for their comments and suggestions made throughout the research. We would also like to thank three anonymous referees for their helpful comments. The findings and conclusions of the paper are those of the authors.

* Corresponding author: Via Francesco Berni, 5-00185 Rome, Italy; Phone and Fax: +39-06-7096121, E-mail:


We analyze whether the build-up of financial vulnerabilities led listed Korean companies to bankruptcy. We find that pre-crisis leverage is systematically high for both poor performing/slow growing firms and for profitable/fast-growing firms. Pre-crisis leverage raises the probability of bankruptcy, which is lower for firms: (1) relying more on (renegotiable) bank credit; (2) with less inter-firm debt; and (3) having higher interest coverage ratios. Finally, none of these liquidity variables help predict bankruptcies for chaebol-firms, suggesting that liquidity constraints are more stringent for non-chaebol. Thus, in a systemic crisis it is not only the strong/healthy that survive.