Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
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Corporate Cash Shortfalls and External Financing: Evidence from Korea

현금부족이 외부자본 조달 결정에 미치는 영향

  • Received : 2023.02.28
  • Accepted : 2023.03.25
  • Published : 2023.03.31
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Abstract

Purpose - Based on the funding-horizon theory, this study aims to test the effects of cash needs and the persistence of external funding needs on firms' external financing. Design/methodology/approach - Financial data of Korean listed companies were collected from DataGuide. Immediate and near-term cash shortfalls are defined using the methodology of Haung and Ritter (2021). We estimate multinomial logit regressions for the financing choice. Findings - First, all three cash depletion variables used in our study increase the likelihood of external financing. Second, firms prefer to issue debt to meet immediate spending and equity to meet long-lived cash needs. Third, this effect is more pronounced for high R&D firms. Fourth, chaebol firms with internal capital markets defer raising external capital for immediate and near-term cash needs. Research implications or Originality - This paper provide empirical evidence that immediate and near-term cash needs induce external financing, and the persistence of cash needs affects the choice between debt and equity, the finding which is consistent with the funding-horizon theory of financing decisions. Being the first paper to test the funding-horizon theory using Korean data, this paper contributes to the literature on the capital structure of Korean firms.

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Acknowledgement

이 논문은 2022년도 조선대학교 학술연구비 지원에 의한 논문임.

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