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.