Why do companies go private? The Spanish case

Resumen

Although more than five hundred companies have gone private from the Madrid Stock Exchange in the last twenty-five years, applied economic and business literature contains few papers analysing the reasons behind this phenomenon, which is more common than we presume. Putting forward the costs and benefits of being listed, we attempt to find out the causes of going private in order to propose and test a series of hypotheses related to Stock Market performance. The main results show that the high concentration of shareholdings in these firms, often resulting from prior takeovers, has a negative impact on their stock market liquidity. On the other hand, the variable measuring the degree of attention paid by financial analysts to these firms is significant. Their lack of interest could be explained by the aforementioned shortage of liquidity. However, the size of the firm also appears to be an important factor related to their unconcern. In the end, the lack of depth of this firms¿ shares market makes that the information that company obtains from market prices about company value lacks accuracy, and this is possibly the greatest loss when it comes to deciding to go private.