This paper evaluates the principal role of a stock market in efficiently allocating resources in an emerging economy. Using a sample of 900 follow-on primary common stock offerings made by Korean publicly traded firms during 2000 to 2007, we find that half of the proceeds are raised through private placements made to creditor banks through debt-equity swaps. Moreover, more than a third of the proceeds raised through public offerings are used to increase equity investments in other (affiliated) firms. We also find that equity issuing firms are generally in bad financial conditions and more likely to get delisted subsequent to the issue especially during the earlier part of the sample period. These findings suggest that the key role of new equities in these markets may be to recapitalize the existing investments or to reshape the overall control structure of a business group in response to external government regulations rather than to finance new real investments.