Abstract
Related party transactions (RPTs) either bring efficiency in transaction or result in conflict of interest between majority and minority shareholders. RPTs realize efficiency in transactions by reducing the transaction cost and facilitating smooth transfer of goods and services between parties. Conflict of interest may arise if the majority shareholders use RPTs as a tool for expropriating the wealth of minority shareholders. When RPTs are in line with efficiency enhancing theory, they help to improve firm performance; and when they are the results of opportunistic behaviour of the majority shareholders, they negatively affect the performance of firm. Since most companies in India engage in various kinds of business dealings with their related parties, it is relevant to analyse RPTs in India. The study based on 2002 firms listed in BSE for the period of 2011–2017 shows that RPTs positively affect firm performance. Considering various types of RPTs, total revenue income from related parties and revenue expenses by them positively affect firm performance. Also, the results underline that promoters’ holding does not have any interaction effects on the association between RPTs and firm performance.
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