The purpose of this paper is to analyze a reasonability for the current debt size of Korean local governments in comparison with that of corporations with the perspective of capital structure theory.
In this paper we suggested new financial proxy rat...
The purpose of this paper is to analyze a reasonability for the current debt size of Korean local governments in comparison with that of corporations with the perspective of capital structure theory.
In this paper we suggested new financial proxy ratios, "sale coverage ratio" in corporation and "budget coverage ratio" in local governments. Using these new financial proxy variables, this paper compared the relative debt size of two organizations indirectly.
Empirical results show that the debt level of local governments in this country is not so high compared to that of corporations. This result can be interpreted that the local government with weak surplus financial power can actively use municipal debt program for the locally foundational and profitable business.