Motives for partial acquisitions between firms in the spanish stock market

Abstract

The paper analyses the motivations for inter-company investment on the Spanish Stock Market through the study of a sample of significant acquisitions reported to the CNMV (the Spanish Securities and Exchange Commission) by quoted firms. By analysing the sign of the cumulative abnormal returns (CAR) and of the correlations among the gains produced by the operation, an attempt is made to find out which motives predominate of the three most important ones suggested by the literature for takeovers: synergy, agency and hubris. Empirical evidence is presented that in the Spanish Stock Market the main motive for acquiring a holding is similar to synergy, especially in partial acquisitions with positive total gains. However, in the samples with negative total gains a main motive similar to hubris always appears. The analysis takes into account the size of the investment and distinguishes between the first report and subsequent ones. Results are similar to those obtained by other authors for takeovers in the US Stock Market, except that in this sample, agency motives do not appear clearly.

Keywords:

• partial acquisition
• event study
• seemingly unrelated regression
• bootstrap simulations
• correlation between gains

ACKNOWLEDGEMENTS

We thank an anonymous referee for helpful comments and suggestions and the comments received at the ‘IV Workshop in Finance of Segovia’ (Spain, 2000) and at the ‘27th Meeting of the Euro Working Group on Financial Modelling’ (New York, 2000). Financial support from the CICYT under project PB96-0767 and the IVIE are acknowledged. A Spanish preliminary version is published in the Working Paper WP-EC 2001-08 of the IVIE.

Notes

¹The choice of the period of study is conditioned for two reasons. The non-existence of CNMV's public registers prior to 1989 and the creation of a special blocktrading market in November 1998.

²IGBM (Indice General de la Bolsa de Madrid) is the General Index of the Madrid Stock Exchange and it is commonly used in Spanish empirical studies as a proxy of the market return.

³The filters used guarantee us that ten days before the event no changes took place in the firm capital.

⁴See Miller (1974).

⁵It assigns a probability of 1/n to each observation.