Causes and Consequences of Block Share Purchases. Evidence from Spanish Non-Financial Firms

The structure of Spanish capital markets doesnot facilitate an efficient market forcorporate control through takeover process,which assumes that inefficient management isreplaced by competing teams. The ownershipstructure of listed companies is highlyconcentrated, with extremely low floating stockfor some companies. At the same time animportant number of companies have introducedanti-takeover provisions in their statutes.There is another way of disciplining managementthrough the exit solution: by transferring theownership of significant blocks of shares, amarket for partial corporate control, asalternative to the takeover market. Theobjective of this paper is to test empiricallythe causes and consequences of block purchasesin Spain for non-financial listed companies.The main results are: i) There is no evidencethat previous poor performance of the companiescauses block increases; ii) Block increasesoccur more frequently in companies with lowerownership concentration. After the blockincrease, on average, the ownership of thelargest shareholder increases. iii) After blockincreases there are significant board changes,for both executive board members and also fornon-executives. (iv) The transfer of blocksoccurs more frequently for smaller companies.We conclude that agency theory predictionsabout the disciplining role of partial takeoveractivity are not fully supported. They arecontingent on institutional characteristics ofthe corporate governance system.