The purpose of this study is to analyze the cross loan guarantee of Korean big business groups. The cross loan guarantee is the practice that large firms under the same business group guarantee the debt of affiliated firm when the affiliated firms borrow from the bank. The present Fair Trade Act does not allow the cross loan guarantee ratio to be over 100 percent. 

The average cross loan guarantee ratio of the 30 big business groups was 342.4% in 1993, and 47.0% in 1997. The average cross loan guarantee ratio of 5 big business groups is lower than that of 6-30 big business groups. The regulation of the interest rate and the expansion of government policy loans were proved to be the important factors in spreading the of cross loan guarantee. And this paper analyses the determinants of capital structure of the largest 30 big business groups.

The cross loan guarantee practices should be regulated through making the financial market function well: Banks should increase loans on credit and improve their capacity of credit rating. Secondly, M&A market should be activated to decrease the cross loan guarantees.

The  cross loan guarantee and the corporate tax burden were found to be statistically significant in determining the capital structure of  the 30 big business groups.