This paper studies the role of corporate financial regulation in the first half of the 1990s, which is here seen as one of the causes of the weak financial structure of the chaebols whose chain-reacting bankruptcies was a prelude to  Korea's 1997 currency crisis.

The main result of this study shows that while corporate demand for money had been steadily increasing from the early 1990s, the corporate financial regulation system had been asymmetrically aggravated toward the direction that forced the chaebols to meet their money demands by short term and unstable financing instead of long term and stable financing.

Regarding money demand, corporate financial regulations had been tightened thereby adversely affecting corporate long term financing channels (i.e. bank loan, bond issues, induction of foreign capital and paid-in capital increase). While, on the other hand, short term and unstable financing channels by issuing Commercial Papers were left totally unregulated. These asymmetric corporate financial regulations between short and long term financing forced Korean chaebols to crowd out long term financing in favor of short term financing. Behind these asymmetric financial regulations lies an ad hoc conception of policy makers that simply blockading the channels of funding would prohibit concentration of financial power by chaebols.

Concerning money supply, compared with the banking sector, financial regulations had been asymmetrically inclined toward favoring the non-banking sector. These asymmetric financial regulations between the banking and non-banking sectors encouraged the rapid growth of Korea's non-banking industries, which had been the main provider of short term and unstable corporate financing. At the same time, the banking sector, which had been the main source of long term and stable corporate financing, began to contract rapidly. As a result, asymmetric financial regulations replaced long term and stable financing capability of Korea's financial system with short term and unstable financing capability. Behind these asymmetric regulations between non-banking and banking sectors lies opportunistic behavior of finance bureaucrats seeking to expand their boundaries of direct superintendency on non-banking sector.

The asymmetric financial regulation system between short term and long term corporate financing had driven Korean chaebols to distort their financial structure by increasing short term and unstable financing, reducing long term and stable financing. With the outbreak of the Asian currency crisis, the distorted and weakened financial structure contributed seriously to the bankruptcies of several major chaebols, which led eventually to the outbreak of Korea's 1997 currency crisis.