| This dissertation focuses on the factors that determine a firms' propensity to default in Korea and the US and how different institutional environments affect this propensity. I develop an improved new Probit regression model of bankruptcy, and find the most powerful model among existing models, including a re-estimated Altman z-score model, and a model based on Moody's RiskCalc(TM) methodology. In Chapters 1 and 2 I find that the z-score threshold for bankruptcy in Korea is lower than that in the US, and that soft budget constraint (SBC), defined as the ability of a firm with a low z-score to obtain short-term bank loans, and ownership concentration emerge as strong indicators of the likelihood of bankruptcy only for Korean firms. In addition, I find that my default model performs better than Altman's z-score model and a model designed to replicate Moody's RiskCalc(TM) model. The default model for Korean firms and the ``mixed" model for US firms, estimated with Altman's variables via Moody's method, possess the greatest model power. In Chapter 3 I examine two popular corporate governance models (Johnson et al., 2000; La Porta et al., 2002), which imply that the bankruptcy threshold in a country with weak institutions should be higher than in a country with strong institutions. This implication contradicts my empirical findings in Chapters 1 and 2 with respect to Korea and the US. I resolve this contradiction by making ownership concentration endogenous to the quality of institutions and confirm their inverse relationship via OLS regression using firm-level data, which can provide an explanation of the positive relationship between bankruptcy threshold and institutions. Furthermore, I investigate the bankruptcy codes of the two countries in order to determine whether the laws governing bankruptcy have an effect on the differences in bankruptcy thresholds. I find that filing a petition for bankruptcy is easier and debtors' rights are better protected in the US than in Korea. These findings suggest that the differences in the z-score bankruptcy threshold between Korea and the US are in part due to differences in not only ownership concentration, but also bankruptcy law. |
