Private benefits from control block trades in the spanish stock exchange

Abstract

A control block trade can be explained by the expectation of financial gains, shared by all shareholders, or by the expectation of private benefits, exclusive to the buyer and possibly at the expense of other shareholders’ rents. The market for corporate control contributes to social welfare when it improves the efficiency of the allocation of resources. When the objective of a block transaction is private benefits, social welfare may be negatively impacted as minority shareholders could withdraw from the market. Therefore the estimation of private benefits would allow the efficiency of the market for corporate control to be assessed. Specifically, the aim of this paper is to calculate private benefits in the Spanish market for partial control. Using a sample of partial control transactions over the period 1990–2016, we find that the median of private benefits is negative, therefore it appears that there is no inefficient use of resources in the Spanish partial control market as a whole, however private costs are detected. The variability of private benefits is explained in a significant way by variables related to the control structure of the target firm, such as the controlling position of the buyer after the transaction, the contestability of control and the cross-shareholdings between the buyer and large shareholders. Performance and the size of the firm are significant as well.