Release of medium-to-long term outlook on respective agenda based
on the analysis of pending macroeconomic issues

Research Monograph

Research Monograph

Enhancing the Dynamism of Korea: the Role of Financial Policy on Vitalizing Firm’s Entry and Exit

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SUMMARY This study tries to examine policy direction for improving the dynamics of the Korean economy by analyzing how the financial policy of the government affects the entry and exit of enterprises. From the empirical analyses on the government’s role in the establishment and growth of enterprise and restructuring of insolvent company, we draw the following policy implications. First, it is necessary to strengthen the evaluation of policies, such as financial support to start-up companies and large restructuring firms, to reduce the social cost of 'government failure'. Government intervention through financial aid, though it has inevitable aspects due to market failure, can sometimes cause a consequence inferior to what would be observed under laissez-faire. Second, the incubating role of venture capital to start-ups should be strengthened because the analysis results indicate that the mentoring activity of venture capital to young firms actually increases the possibility of follow-up investment. Third, it is desirable to construct a new corporate restructuring framework which integrate the existing corporate workout and court receivership system. Due to the complexity of creditor structure and the proliferation of industry-wide restructuring, the current system is found to be no longer efficient in supporting corporate restructuring in recent years.
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