Creative destruction mechanism of Korean industry from the perspective of industrial dynamics

다국어 초록 (Multilingual Abstract)

Schumpeter's study on economic growth and technological progress in the capitalist system as a process of creative destruction has influenced many studies on industry dynamics. In addition to Schumpeterianism, evolutionary economics and organizational ecology also attempted to grasp the sources of industrial dynamics. Although each perspective is slightly different, they all perceived competition in the market as a major source of industrial dynamics. In particular, Schumpeterianism emphasized Schumpeterian competition that firms are competing their competitive advantage originated from innovation as a main source of industry dynamics. In this perspective, this study attempted to analyze the creative destruction mechanism of Korean industry. In particular, we tried to describe the selection criteria exists in the Korean industry through empirical analysis of exit firms.
First, we reviewed theoretical background and the empirical analysis on the survival of firms and derived stylized facts on firm survival. The stylized facts were classified into individual level, firm level, industry level, and macroeconomic level. At the individual level, it was possible to derive a stylized fact that the higher the level of education and experience of the organization members, the better the survival of the firm. At the firm level, the firm size, age, R&D investment, and exporting and were identified as significant determinants on the firm survival. At the industrial level, it was reported that the firm entry rate, industrial growth rate, which determine the degree of competition of the industry, and technology intensity as determinants on the survival of the firm. At the macroeconomic level, we were able to derive a stylized fact that firms' survival rate is procyclic to upturns and downturns of the economy.
Second, survival analysis was implemented to describe the selection criteria of Korean industry through firm level micro data. The results showed that the stylized facts on the survival such a as firm size, age, and R&D investment is also found in Korean industry. In addition, we found the changes in the firm selection criteria as a result of restructuring of the financial sector and the industry sector in the process of overcoming the Asian financial crisis. More specifically, it was found that there was a change in firm financial management behavior before and overall incentive in terms of firm survival for the firm's investment activity was reduced after the Asian financial crisis.
Third, we focused on the cleansing effect hypothesis in economic recessions. This study investigated two recessions in Korea, the Asian financial crisis and the global financial crisis. We measured total factor productivity using micro level manufacturing plant data from 1993 to 2013 and decomposed the source of the changes in total factor productivity to measure the cleansing effect in two large recessions. During the Asian financial crisis, there was no evidence to support a cleansing effect hypothesis. In contrast, during the global financial crisis, we found the evidence of a cleansing effect. Additionally, we found differences in market selection criteria in the two recessions; by the global financial crisis, the market selection criteria had changed to enable a more conducive environment for the creative destruction process.
Fourth, the problem of zombie companies was investigated from a different perspective. Previous studies have recognized zombie companies as a factor that hinders the creative destruction process and recognized that they should be exited through restructuring. However, this study focuses on the fact that the problem of zombie firm may be different according to the financial system of the country. Specifically, we analyzed the characteristics of recovering firms and exiting firms in the credit based financial system such as Korea. Based on the firm level micro data, it was found that the firms with high amount of accumulated knowledge showed higher probability of recovering to the normal firms. Also, it is confirmed that the financial sector was not able to identify and support selectively firms between recovering firms and exiting firms.

목차 (Table of Contents)

• Introduction 1
• Chapter 1. Research Background 5
• 1.1 Theoretical background on firm survival 5
• 1.1.1 Firm survival from the Schumpeterian perspective 6
• 1.1.2 Firm survival from an evolutionary perspective 8
• 1.1.3 Firm survival from an organizational ecology perspective 10
• 1.2 Empirical background on firm survival 12
• 1.2.1 Firm survival determinants: Individual level 13
• 1.2.2 Firm survival determinants: Firm level 15
• 1.2.3 Firm survival determinants: Industry level 26
• 1.2.4 Firm survival determinants: Macro level 31
• 1.3 Sub-conclusion 35
• Chapter 2. Evolution of Firm Selection Criteria in the Korean Manufacturing Sector 37
• 2.1 Introduction 37
• 2.2 Literature review 39
• 2.3 Research hypothesis 45
• 2.4 Empirical strategy 50
• 2.4.1 Survival function and hazard function 50
• 2.4.2 Parametric survival analysis model 53
• 2.5 Data and Variables 56
• 2.5.1 Data 56
• 2.5.2 Variables 58
• 2.6 Results 60
• 2.6.1 Specification of parametric survival function 60
• 2.6.2 Regression result of parametric survival model 61
• 2.7 Sub-conclusion 66
• Chapter 3. Productivity Dynamics and Cleansing Effect of Two Economic Crisis in Korean Manufacturing Sector 69
• 3.1 Introduction 69
• 3.2 Literature review 72
• 3.3 Research hypothesis 77
• 3.3.1 Cleansing effect in the Asian financial crisis 79
• 3.3.2 Cleansing effect in the global Financial Crisis 81
• 3.4 Empirical strategy 82
• 3.4.1 Measure of Total Factor Productivity 83
• 3.4.2 Decompose TFP growth 85
• 3.4.3 Survival analysis: Cox proportional hazard model 86
• 3.5 Data and variables 87
• 3.5.1 Data 87
• 3.5.2 Variables 91
• 3.6 Results 92
• 3.6.1 Calculation result of total factor productivity (TFP) 92
• 3.6.2 Decomposition analysis result of productivity growth 94
• 3.6.3 Survival analysis result: Cox proportional hazard model 98
• 3.7 Sub-conclusion 103
• Chapter 4. Identifying the Real Zombie Firms: The Role of Finance 105
• 4.1 Introduction 105
• 4.2 Literature review 107
• 4.2.1 Zombie firms in previous literature 107
• 4.2.2 Role of finance and finance system 109
• 4.3 Research hypothesis 113
• 4.4 Empirical strategy 115
• 4.4.1 Competing risk model 115
• 4.4.2 Probit model 119
• 4.5 Data and variables 120
• 4.5.1 Data 120
• 4.5.2 Variables 125
• 4.6 Result 126
• 4.6.1 Regression result of competing risk model 126
• 4.6.2 Regression result of probit model 128
• 4.7 Sub-conclusion 130
• Chapter 5. Conclusion 134
• 5.1 Summary of the study 134
• 5.2 Implications and limitations of study 137
• Bibliography 141
• Appendix 1: List of empirical studies on firm survival determinants covered in Chapter 1 159
• Appendix 2: Descriptive statistics of empirical data in Chapter 2 166
• Appendix 3: Descriptive statistics of empirical data in Chapter 3 171
• Appendix 4: Result of aggregated productivity growth decomposition analysis by industry 172
• Appendix 5: Descriptive statistics of empirical data in Chapter 4 175
• Abstract (Korean) 178