Issues and remedies in Korean business restructuring

Economic environments for Korean business worsened with the occurrence of the Asian financial crisis, and many Korean firms pressed with high financial costs and lower profitability became insolvent and had to undergo restructuring. This paper focuses on the issues and remedies of the current restructuring process. There have been abuses of the dual system of restructuring, composition and corporate reorganization. Against the purpose of the bankruptcy law, many owner-managers chose the type of restructuring just to keep control of their firms and delay the restructuring process. In this paper, we provide empirical evidence that the firms suitable for composition and the firms suitable for corporate reorganization can be distinguishable and predictable. Thus the judiciary court can effectively determine the type of restructuring needed for a specific firm. We also provide empirical evidence that there have been no performance differences between the firms motioned for composition and the firms motioned for corporate reorganization. This study shows that the success of restructuring is not depending on the type of restructuring chosen, but on a specific firm's financial position and self-help activities. This finding supports reform of the bankruptcy law to allow unification of the two types of restructuring.