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Korean J Financ Stud > Volume 46(4); 2017 > Article
Korean Journal of Financial Studies 2017;46(4):809-837.
DOI: https://doi.org/10.26845/KJFS.2017.    Published online September 30, 2017.
Financial Distress, Uncertainty, and Corporate Investments
Byungmo Kim, Joon-Seok Kim
재무적 곤경, 불확실성, 그리고 기업의 투자
김병모, 김준석
This study investigates the effect of financial distress on the relationship between expected market volatility and corporate investments. Using the Korean non-financial listed firms data from 2002 to 2013, we find that when the market volatility is expected to increase, financially healthy firms reduce investments whereas financially distressed firms increase investments. An increase in the expected market volatility has ambivalent effects on the corporate investments: it increases the value of option to delay corporate investments, and at the same time, it increases the risk of funding shortfalls for the delayed investments. As expected market volatility increases, for financially healthy firms, the former effect dominates the latter, resulting in delayed investments, whereas for financially distressed firms, the latter effect dominates the former, resulting in accelerated investments. In addition, we find that the accelerated investments of financially distressed firms are accompanied by a relative decrease of investment profitability.
However, the positive relationship between expected market volatility and corporate investments in financially distressed firms may come from risk shifting incentive. Empirical results do not support this possibility in that financially distressed firms’ investments neither increase the volatility of asset value nor decrease the value of debt.
Key Words: 재무적 곤경,불확실성,투자,실물옵션,위험이전,Financial Distress,Uncertainty,Investment,Real Options,Risk Shifting

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