The Korean Journal of Economic Studies
The Heterogenous Effects of Financial Development on Small and Medium-size Enterprises’ Growth
Sang Yoon Song (Seoul National University), Young Sik Kim (Seoul National University)Year 2016Vol. 64No. 3
AbstractThis paper examines the effects of financial development on firm growth viathe alleviation of financial constraints using data from 1,619 manufacturingfirms with more than 5 and less than 300 employees in South Korea between2001 and 2013. This paper focuses on the heterogeneity effect of financialdevelopment on firm growth based on information asymmetry as measured bya firm’s size and age. The key findings are as follows: First, financialdevelopment for SMEs had larger positive effects on the growth of large andold firms than young and small ones. Firms with less than 30 employeesespecially saw no benefits from financial development. Second, althoughfinancial constraints became more severe after the financial crisis on average,firms older than 20 years old with more than 100 employees were lessnegatively affected than young and small ones. Third, an industry-levelanalysis expanded from firm-level studies showed that the growth rate ofindustries with high financial constraints was much lower than that ofindustries with low financial constraints.