Debt restructuring through equity issues

Kim, Woojin and Ko, Young Kyung * and Wang, Shu Feng (2019) Debt restructuring through equity issues. Journal of Banking & Finance, 106. pp. 341-356. ISSN 03784266

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This paper examines whether new equity may be issued to recapitalize existing assets in financially distressed firms. Using a sample of 3,184 follow-on primary common stock issues offered by Korean publicly traded firms from 2000–2013, we find that more than one-third of the equities are issued to creditors in direct exchange for debt. We also determine that equity issuers are in severe financial distress prior to the issue and are more likely to experience a subsequent change in control. The proceeds are used more to replace existing debt than to increase R&D. These findings suggest that equity issues in emerging markets may be used primarily to recapitalize existing assets through debt restructuring or control transfers rather than to finance growth options.

Item Type: Article
Uncontrolled Keywords: equity issue; debt restructuring; distress; emerging markets; debt-equity swap; control transfer
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
Divisions: Others > Non Sunway Academics
Sunway University > Sunway University Business School > Dept. Accounting
Depositing User: Dr Janaki Sinnasamy
Related URLs:
Date Deposited: 16 Aug 2019 09:03
Last Modified: 16 Aug 2019 09:04

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