Fixed asset revaluation and external financing during the financial crisis: Evidence from Korea

Abstract

During the 2008–2010 global financial crisis, the Korean government allowed firms to revalue fixed assets to strengthen their balance sheets, helping distressed firms to obtain external financing. Using firms listed on the Korea Exchange from 2008 to 2010, this study finds that subsequent to fixed asset revaluation, firms in need of financing use long-term debt financing more than short-term debt and equity financing. The increased long-term debt financing is in the form of private debt rather than public debt. The increase in private long-term debt financing is driven by financially constrained firms rather than by financially healthy firms. Our findings imply that fixed asset revaluation was an effective policy tool in Korea for helping firms with financial constraints obtain long-term debt financing.