The Role of M&A in Restructuring Korea's Distressed Firms

• Main Author: Choi, Yong-Seok
• Format: Article
• Language: English
• Published: Korea Development Institute 2004-12-01
• Series: KDI Journal of Economic Policy
• Subjects: 합병 및 인수(Mergers and Acquisitions); 기업구조조정(Corporate Restructuring); 경제위기(Financial Crisis)
• Online Access: https://doi.org/10.23895/kdijep.2004.26.2.179

With the outbreak of the financial crisis in mid-1997, the Korean government has removed a majority of M&A-related regulations in order to facilitate M&A transactions. This was based upon the belief that M&As are one of the most efficient ways to restructure financially distressed firms compared to other government-driven restructuring programs. In this paper, we try to empirically assess the role of M&A in restructuring distressed firms in Korea following the financial crisis. In doing so, three empirical analyses have been conducted. The first analysis attempts to identify financial characteristics of the insolvent M&A targets. The second exercise directly tests the change in performance of insolvent M&A targets before and after such M&A transactions. The third analysis is a more general assessment on the role of M&A transactions to determine if being involved in an M&A transaction (regardless of its motivate) has reduced the probability of becoming insolvent in the future. Overall, we find some evidence supporting that M&A activities after the financial crisis have played a positive role in restructuring financially distressed firms in Korea.