This paper examines the distress resolution mechanism under concentrated equity ownership and concentrated bank debt. Using a large sample of public and private Korean firms that enter distress between 2000 and 2019, we find that distress resolution is more likely when private placements of new equities are accompanied by a change in control. This effect is more pronounced when a large business group member firm is taken over. These findings suggest that equity capital injection and monitoring by the new controlling shareholder may be the key determinants of distress resolution under poor investor protection, which further explains why concentration of ownership may persist over time under such environment.

Key words: Distress resolution, Control transfer, Ownership concentration, Private placement

JEL code: G32, G33, G34