earticle

영어

In the midst of the financial crisis erupted in 1997, small firms in Korea have suffered from unprecedented high rate of defaults. The causes of the small firm default are to be analyzed from the sort-term and long-term perspective. The sort term causes are extremely high rate of interest rate, reduced domestic market demand, liquidity trap following the restructuring of banking industry, and rising costs due to the abnormally weakened Korean won. On the other hand, the long-term and structural causes of small firm defaults are attributable to the high debt/equity ratio, heavy dependence on collateral financing, lack of efficient market system for small firm IPOs, and hierarchical relationship with large firms. To resolve these problems, long-term strategies, along with short-term measures, should be employed. First, accounting system should be streamlined to reveal the fair value of a firm more clearly, and bank loan should be made on credit base rather than on collateral base. Second, equity market should be leveled up enough to accomodate high tech IPOs, thus making it more probable for venture capitalists to crop their early investment to the small but promising venture firms. Third, the relationship between small firms and large firms should be based upon the bilateral partnership rather than hierarchical relationship.