Can Related Party Transactions Be a Matter for Firm Value? Evidence from Emerging Markets

Abstract

This study seeks to answer a question about the relationship between related party transactions and the company's market value. It uses a sample of listed firms from six emerging markets namely, Bahrain, Kingdom of Saudi Arabia, Pakistan, Kuwait, Jordan and United Arab Emirates. Our final sample consists of 261 firms with 1044 firm-year observations covering the period from 2015–2018. The study has classified related party transactions into five types namely, key management compensation, related party (due from-receivables), related party (due to-payables), related party (sales) and related party (purchases). The results show that two types of related party transactions namely, key management compensation and (Due to-payables) have a significant effect on firm's market value. For first type, there is a significant negative effect on firm value while, second type has a significant positive effect. In contrast, the other three related party transactions (purchases, sales and receivables) are not significantly associated with firm's market value.