The Effects of Exports by Small Firms on Their Credit Ratings, Bank Loans and Bank Loan Costs in Korea

Abstract

Purpose - We investigate the effects of exports by very small Korean startup firms with their initial asset size around 1 or 2 million US dollars, in comparison with non-start ups, on their credit ratings, bank loans and bank loan costs. Design/methodology/approach - We use 51,580 observations of 11,293 firms provided by KIS-Value data base from 2009 to 2015 and apply fixed effects panel regression models. Findings - Findings are as follows. First, new startups have higher credit ratings by 0.0527 in the 1- 15 grade range, compared with non-startups. However their bank loans are higher by 0.019 percentage points while their bank loan costs are 0.0446% percentage points lower than non-startups. Second, exports by startups have a negative effect on credit ratings, lowering such ratings by 0.180 grade points compared with non-startups. However, exports by startups increase their financing through bank loans by 1.12% percentage points and decrease their borrowing costs by 0.570% percentage points than non-startups, per one percent increase in exports. For small firms as a whole, exports show similar results in credit ratings, bank loans and financing costs. Research implications or Originality - The results suggest that corporate performance in exports provide a negative signal in credit rating for small startups. Small startups effectively finance funds at a lower cost for at least the first three years after their establishment.