Distress Resolution through New Block Formation: Implications for Ownership Concentration. (13th December 2021)

• Record Type: Journal Article
• Authors: Choy, Yoonyoung
• Is Part Of: Asia-Pacific journal of financial studies. Volume 51:Number 2(2022)
• Page Start: 291
• Page End: 317
• Publication Date: 2021-12-13
• Subjects: Control transfer -- Distress resolution -- Ownership concentration -- Private placement; Pacific Area -- Economic conditions -- Periodicals; Finance -- Asia -- Periodicals; Finance -- Pacific Area -- Periodicals; Asia -- Economic conditions -- Periodicals; 332.09505
• DOI: 10.1111/ajfs.12357
• Languages: English
• ISSNs: 2041-9945

Abstract

Abstract: This study examines distress resolution under concentrated equity ownership and concentrated bank debt. Using a large sample of Korean financially distressed firms, I find that distress resolution is more likely when private placements of new equities are accompanied by a change in control. Control transfers in which new blocks are created through equity capital injection contribute to operational efficiency and long‐term performance. These findings suggest that equity capital injection and monitoring by new blockholders are essential for distress resolution under poor investor protection, which further explains why concentrated ownership may persist under such an environment.