This study examines whether control block transactions, a dominant form of takeovers in emerging markets, is efficient in a neo-classical sense. Based on a large sample of control block transactions in Korea, we find that a key factor behind a takeover is financial distress in the target, not just for the initial takeover, but also for a series of subsequent takeovers. We also find that new equities are issued by the target during the control transfer process, the proceeds of which are used as capital infusions to the distressed target. Moreover, creditor banks effectively mediate control transfers between outgoing and incoming controlling shareholders, potentially with a lag. Despite this restructuring process, target’s financial distress is further exacerbated as control block changes hands, especially multiple times. 

JEL Classifications: G34
Keywords: Takeover, Financial distress, Equity issuance, Private benefits, Agency problem​