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 (PB), exclusive for 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 in the allocation of resources. When the purpose of block transaction is PB, social welfare could be damaged as minority shareholders could withdraw from the stock market. So the evaluation of PB will allow to assess the efficiency of the stock market. Using a sample of partial control transactions in the Spanish market over the period 1990-2016, we find that, in median, PB are null. Their variability is explained in a significant way by the controlling position of the buyers in the target firm after the transaction, the size of control of the “rival” insider and to the size of the firm.