Party Loan Research Articles

Implication of Transfer Pricing Scheme on Manufacturing Companies’ Profitability in Tanzania: A case of Dar es Salaam Stock Exchange

The main objective of the Study was to assess the implication of transfer pricing scheme on manufacturing companies’ profitability in Tanzania. Specifically aimed to determine the cause and effect relationship of interest payments on related party loans, payment of service fee on intercompany services and royalty payments for the use of related party intangible properties on manufacturing companies’ profitability. The study adopted a positivism philosophy and adopted deductive reasoning. The secondary data was collected from 4 manufacturing firm’s annual report for the period of 2013 to 2022. The study used multiple linear regression for data analysis and this was done through STATA software version 14.2. The study findings show that Interest payments on related party loans has significant negative effect on manufacturing companies’ profitability. Furthermore, the result shows that payment of service fee on intercompany services has no significant effect on manufacturing companies’ profitability. Finally, Royalty payments for the use of related party intangible properties has significant positive effect on manufacturing companies’ profitability. Current study recommends that, for companies to comply with relevant transfer pricing regulations, close supervision by taxing authority (TRA) is considered necessary to reduce unhealthy transfer pricing practices. Also, study recommends that interest payments on related party loans should be set at values that would not negatively impact the financial performance of manufacturing firms in Tanzania. Related party companies should set transfer price to reflect the ALP (arm’s-length price) that unrelated parties would agree to in the same circumstances for transfer or use of similar intangible property. Moreover, the study recommends government to put in place monetary policies that will facilitate financial performance of listed manufacturing companies and ensure proper regulation of the financial institutions so as to provide adequate credit facilities for the manufacturing firms in Tanzania.

Related Party Transactions and Firm Value in Indonesia: Opportunistic vs. Efficient Transactions

Related party transactions (RPT) are a common transaction conducted among companies and are the focus of the business world today. The purpose of this study is twofold, as follows: first, to provide empirical evidence for whether the RPT of related party loans in manufacturing companies in Indonesia is an opportunistic transaction or an efficient transaction, and second, to provide evidence for whether there are differences in company perspectives before and during the COVID-19 pandemic. This study employs data from all manufacturing companies listed on the Indonesia Stock Exchange (IDX). The data analysis techniques include descriptive statistical and hypothesis testing. The results of this study in the period 2018–2021 show that RPT has a positive effect on company value. During this period, that is, the years prior to the COVID-19 pandemic, RPT had a negative effect on company value. In contrast, the 2020–2021 period (during the COVID-19 pandemic) shows the opposite result: RPT has a positive effect on company value. The results of this study suggest that in the 2018–2021 and the pandemic period (2020–2021), companies conducted RPT for efficiency purposes, while prior to the pandemic (2018–2019) RPT was conducted for opportunistic purposes.

PROBLEMATIKA AKSELERASI PENANGANAN KEMISKINAN NELAYAN DI MASA PANDEMI COVID-19 DI KOTA MAKASSAR

Sustainable development goals, or SDGs, are still difficult to realize, especially the goal of ending poverty in all its forms. The Covid-19 pandemic, which has been around for more than a year, has actually exacerbated the condition of poverty in the community. In the city of Makassar, the poverty rate increased dramatically from 4.1 percent to 7.2 percent during 2020 (Makassar Ministry of Social Affairs data). Ironically, the poor who live on islands such as the people of Kodingareng, Barrang Lompo, Barrang Caddi, Lumu-Lumu, Laikang and others, are now getting poorer because of the Covid-19 outbreak. Therefore, this paper seeks to describe the problems of accelerating the handling of fishermen's poverty during the COVID- 19 pandemic in the city of Makassar in accelerating the SDGs. The method used is descriptive qualitative, and the data processed are secondary data and primary data. This research begins with identification and problem formulation, data collection, data processing and analysis including data classification and reduction, conclusion drawing and verification. The results of this study conclude that, the poorer fishermen on the islands, due to the decreasing number of fish catches, decreasing fish prices, higher operating costs at sea, swelling third party loan funds, social restrictions during the pandemic and the impact of sea sand mining in Makassar. . In addition, the social structure of island fishing communities is still trapped by structural poverty conditions. As a suggestion, it is necessary to accelerate intervention in implementing the implementation of village SDGs so that poor fishermen in the islands of Makassar city can get out of poverty.

Internal Security, Management of Funds and IPPIS Challenges among Unions and Cooperative Societies in Tertiary Institutions in Nigeria

The constant outcry of misuse and mismanagement of funds in governmental organisations have given concern to several researches, debates and blame games. Our focus in this qualitative study is to interpretively examine the extent of internal security and management measures that are explorable in curtailing the inability to recover dues and third party loans in an IPPIS challenge-prone era among unions and cooperative societies in tertiary institutions in Nigeria, the University of Uyo, Uyo being our focus point. The study is an interpretive research that employed semi-structured interviews for the chairpersons of ASUU, SSANU, NASU and NAAT and the presidents of cooperative societies run by the unions in a federal university such as ours. These chairpersons and presidents were purposively selected for the study. Three research questions were raised to guide the study: What internal security measures are put in place by the unions to ensure recovery of dues and third party loans from debtors? How do the cooperative societies manage their funds and recover dues and third party loans during the IPPIS era? What relationship exists between the unions, cooperative societies and IPPIS office for dues and third party loans recovery? The findings of the study showed that there is no full proof of internal security measures put in place to recover dues and third party loans; that committees are set up in the cooperative societies to manage their funds through several management strategies; there is no clear relationship between the Unions, cooperative societies and IPPIS Office to aid in the recovery of dues and third party loans in the university. The study recommended among others that the IPPIS should be transparent enough to abide by the laws of its establishment in order not to under mind its primary functions of deduction and remittance of dues and third party loans to beneficiaries.

Internal Security, Management of Funds and IPPIS Challenges among Unions and Cooperative Societies in Tertiary Institutions in Nigeria

The constant outcry of misuse and mismanagement of funds in governmental organisations have given concern to several researches, debates and blame games. Our focus in this qualitative study is to interpretively examine the extent of internal security and management measures that are explorable in curtailing the inability to recover dues and third party loans in an IPPIS challenge-prone era among unions and cooperative societies in tertiary institutions in Nigeria, the University of Uyo, Uyo being our focus point. The study is an interpretive research that employed semi-structured interviews for the chairpersons of ASUU, SSANU, NASU and NAAT and the presidents of cooperative societies run by the unions in a federal university such as ours. These chairpersons and presidents were purposively selected for the study. Three research questions were raised to guide the study: What internal security measures are put in place by the unions to ensure recovery of dues and third party loans from debtors? How do the cooperative societies manage their funds and recover dues and third party loans during the IPPIS era? What relationship exists between the unions, cooperative societies and IPPIS office for dues and third party loans recovery? The findings of the study showed that there is no full proof of internal security measures put in place to recover dues and third party loans; that committees are set up in the cooperative societies to manage their funds through several management strategies; there is no clear relationship between the Unions, cooperative societies and IPPIS Office to aid in the recovery of dues and third party loans in the university. The study recommended among others that the IPPIS should be transparent enough to abide by the laws of its establishment in order not to under mind its primary functions of deduction and remittance of dues and third party loans to beneficiaries.

The Satyam Effect on Related Party Loans in India

We examine the impact of the failure of Satyam Computer Services Ltd. (“Satyam”), a major corporate governance related event in India, on related party loans of Indian public companies. Using data from a balanced panel of 794 firms for the years 2006–2012, we find that the Satyam failure had a significant negative impact on related party loans given by Indian firms. The average of net related party loans (as a proportion of total assets) declined from 2.37% in 2008 to 0.23% in 2010. Furthermore, the reduction in related party loans was more prominent in firms with lower levels of external monitoring. Finally, since prior research suggests that there was no significant Satyam effect on the frequency or attendance at audit committee meetings, our results suggest that there can be substantive changes in operational decisions without observable changes in governance.

PENGARUH LABA BERSIH, PERTUMBUHAN PERUSAHAAN DAN ROI TERHADAP DIVIDEN KAS PADA SUB SEKTOR MAKANAN DAN MINUMAN YANG TERDAFTAR DI BURSA EFEK INDONESIA

Cash dividend is a dividend that cash payment to shareholders in accordance with the percentage of its shares. Net income is the excess of all revenues for all costs for a given period after deducting the income tax presented in the form of income statement. Net income and cash dividends have a relationship, if net income has increased it can be predicted that the dividend also increases, and conversely the decline of dividend received indicates the condition of the company is not good. Growth of the Company (growth) is the ability of the company to increase the size of asset increase existence, equity, profit and sales. To measure how large the company is growing within a certain period of time. Growth of companies and cash dividends have a relationship in which the company in the growth phase requires very much funding, because a company is pleased to use the company's profit from the use of outside party loans, because of the interest burden and date of time that has been agreed together. Thus the growth of the company affects the cash dividend. Return on investment or ROI is the return on investment that is calculated based on the distribution of revenue generated by the size of the invested capital. Return on Investment (ROI) and cash dividends have a relationship where the greater the ROI shows the company's performance is getting better, because the return of the investment is greater.The research aims to determine the development of net profit, growth of the company and Return on Investment (ROI) on cash dividends and to determine the impact of net profit, company growth and Return on Investment (ROI) on dividends of the food and beverage sub-sectors listed on the Indonesian stock exchange both simultaneously and partially. Locus Research is a sub-sector of food and beverage listed on the Indonesian Stock exchange from 2012-2018 period. Sampling is carried out using purposive sampling with the number of samples used as many as 5 companies in the food and beverage sub-sectors listed on the Indonesia Stock Exchange period 2012-2018. The secondary data source in this study took over from Indonesia Stock Exchange. The research methods used in this study are quantitative approaches. Data analysis techniques use multiple linear regression analyses and classical assumptions. Based on the results of net income, company growth and ROI are influential and significant to the cash dividend simultaneously whereas net profit and company growth are influential and significant to the cash dividend partially and ROI does not affectcash dividends partially.

Satyam versus Wirecard - A case study research on two accounting corporate scandals

Many of the most well-known accounting scandals were associated to related party transactions (RPT) such as Enron, Wordcom or Parmalat. In general there are two contrasting views on RPT: they represent either conflicts of interest as they can violate against management’s agency responsibility to shareholders or supervisory board purpose of monitoring. This view is the conflict of interest hypothesis and can be derived from agency theory by Berle and Means (1932) and Jensen and Meckling (1976). The alternative view is the efficient transactions hypothesis, which assumes that RPT efficiently fulfill underlying economic needs of the company, as they represent possibilities to achieve lower refinancing costs. This article will apply case study research on two recent accounting scandals Satyam also known as the Indian Enron and Wirecard a German electronic payments giant involving RPT (Beerbaum et al., 2018). It is common requirement within international accounting standards with IFRS or US GAAP that RPT have to be adequately disclosed in the financial statements of the reporting entity. This should mitigate the conflict of interest hypothesis, as transparency improves oversight. Although IAS 24 is endorsed over two decades, a general observation in the literature is that these transactions are not properly disclosed in all instances (Mackenzie et al., 2014). IAS 1 demands to fully comply with all IFRS, which also relates to materiality. Related party transactions are very often prescribed by local requirements and listing. The conclusion on the cases is. While Satyam is very obviously reporting RPT with large increase, Wirecard is not transparent as RPT such as key related party loans from Wirecard to Management have not been disclosed in the annual statements, which is not in line with IAS 32. However, this is for an outside investor difficult to see, as those RPT are missing in the notes or in the Corporate Governance Report, which should have been raised as a finding from the auditor.

Strategic Default and Tunneling by Firms: An Empirical Investigation

Strategic default by firms remains a global concern. Although the theoretical literature studies this phenomenon, empirical evidence is scant as data categorizing defaults as strategic or distress-driven is unavailable. We use unique data from India to investigate how firms that strategically default on their debt differ ex-ante in their behavior from distress-driven defaulters. We find that strategic defaulters tunnel cash by making large loans to related parties and these loans are significant ex-ante predictors of strategic default as against distress default. Strategic defaulters make these loans despite their own need for external financing. Further, these loans carry lower rates of interest and are repaid over significantly longer periods than loans made by distress defaulters and non-defaulters. Thus, the magnitude and contractual features of related party loans contain information on the giver’s intent to strategically default on external debt.

Control-Ownership Wedge, Related Party Loans and Institutional Ownership: Evidence from India

In this study, we measure control-ownership wedge of the listed firms affiliated with Indian business groups (BGs) and investigate its effect on the related party loans (RPLs). We hypothesize and f...

The Chevron Australian Holdings Case and the Reach of the Arm's Length Principle

The recent decision by the Full Federal Court in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62 is a watershed, not only in Australia but internationally. It provides important insights into how the arm’s length principle takes account of the economic, market and business conditions in which a multinational has to operate. It explores the potential implications arising from the different business practices multinationals adopt for their dealings with independent external entities and those they use for intra-group dealings. The decision may well have impacts beyond the immediate context of intra-group financing, and suggests the latest version of Australia’s transfer pricing rules (Subdivision 815-B) has a sound foundation. Importantly, the Full Court found that when pricing related party loans Australia’s transfer pricing rules allow the relevant subsidiary to be seen as part of the wider international group and do not require it to be viewed as a stand-alone entity. A significant breakthrough is the articulation of a reasonable expectation test based on rational commercial behaviour, similar to the approach Australian courts have taken to the operation of the general anti-avoidance provisions in Part IVA. The Full Court explains this as an evaluative prediction of events and transactions based on evidence and, where appropriate, admissible, probative and reliable expert opinion as to what might reasonably be expected if the actual agreement had been unaffected by the lack of independence and the lack of arm’s length dealing.

PENYELESAIAN PERMASALAHAN KREDIT TANPA AGUNAN (UMKM) DI DENPASAR

Government of Denpasar city has a collaboration in distributing credit without agunan, namely Memorandum of Understanding (MOU) among Denpasar city government and PT, Bank Pembangunan Daerah Bali and PT. Asuransi Indonesia about micro small development, middle small development and cooperative with credit loan pattern No. Add: 893.3/1919/ORG.0182.107.2006.2, 17/MOU /LPKD/VII/2006 dated 26th of July 2006, government of Denpasar city as a guarantor, however, the existance of Financial Investigation Agency based on governmental regulation of Indonesia Republic Number 54 of 2005, concerning Local Loan Article 4 point 1 that states “Regional Government is prohibited to assigne guarantee for other party loan”. Thus, there is a gap about contract agreement with Governmental Regulation of Indonesia Republic Number 54 of 2005 concerning Local Loan.
 In relations to this background, so the writer proposes 2 legal problems namely, How is the legal protection toward creditor if it takes place wanprestasi on credit without agunan to UMKM in Denpasar and How is te effort done by bank in case there is a problem with credit without guarantee of UMKM in Denpasar.
 This type of study shows that in pursuant to Guarantee Legal Regulation and existing Banking Law, the requirement of guarantee in giving credit by bank is not an absolute prerequisite. If it takes place wanprestasi on credit without agunan UMKM in Denpasar so it will be under responsibility by PT. Askrindo as a guarantee. 
 The effort done, in case, there is a problem of credit without a guarantee to UMKM in Denpasar, the settlement is done through Non Litigation, namely settlement in rescehduling, prerequsite again and manageable again.

Political Connections and Related Party Transactions: Evidence from Indonesia

This paper examines whether politically connected firms use related party transactions as a tunneling mechanism in Indonesia. We further investigate whether the presence of tunneling compels managers to manage earnings to conceal such expropriation of resources. Our study is motivated by conflicting evidence in the extant literature about the role of political connections and related party transactions. Using data from Indonesia, we document that politically connected firms use related party loans to tunnel resources, and that this effect is more pronounced for firms with government connections. We further document that politically connected firms manage earnings to conceal their tunneling activities. By documenting the role of related party transactions as a specific channel through which connected firms expropriate resources, we enrich the political connection and related party transactions literature.

Analysis of Third Party Loan Guarantee and Performance of Non-Prime Household Loans in Microfinance Banks in Kenya

Household loans remain the engine to productivity and economic growth globally. Non-prime household loan is essential, because it enables the borrowers with no collateral to access credit from Microfinance Banks. The survival and sustainability of non-prime household loans globally is therefore significant. Credit risk however remains the main deterrent of the soundness of Microfinance Banks. This leads to the poor performance of microfinance institutions in many economies in the world. Several countries globally are making inroad in reducing the credit risks, which lead to the poor performance of Microfinance Banks. It is still unknown why the credit risk affects the performance of non-prime household loans in the Microfinance Banks domiciled in Kenya. The reason for conducting this study is to determine the level at which the third party loan guarantee and the performance of non-prime household loans relate to the Microfinance Banks in Kenya. Particularly, this study is to determine how the amount secured by guarantee, recoveries from guarantors, percentage of loan secured, and percentage recoveries from guarantors relate to the performance of nonprime household loans in the Microfinance Banks in Kenya. The population was 516 senior management employees of the banks. The researcher conducted a multiple regression analysis for determining the relationship between the amount secured by guarantee—recoveries from guarantors, percentage granted, and percentage recoveries—and the performance of non-prime household loans. The R and R2 were used for determining the strength of the relationship and the coefficient of determination at 0.05 level of significance of variables. The result of this study reveals that there exists a strong relationship between the dependent and independent variables, thereby contradicting the null hypothesis, which states that the relationship does not exist. The percentage of the recoveries from the guarantors over the total recoveries did not have a strong relationship and was not significant. This study recommends the enhancement of the loan guarantee processes to reduce high loan default geared toward good performance of this loan so that it can be accessible to many people.

Governance Structure and Related Party Loan Guarantees: The Case of Chinese Family Business Groups

ABSTRACTLoan guarantees to related parties by affiliated subsidiaries within family controlled pyramids form a means by which the controlling family expropriates value from minority shareholders. The controlling family, however, will attempt to escape blame for the behavior. Using a sample of 1785 listed Chinese firms affiliated with family-controlled business groups, we explore how family governance structure affects the use of related party loan guarantees. As hypothesized, we find that affiliates with non-family chairmen, but with family directors or senior executives, issue larger volumes of loan guarantees to related parties, whereas affiliates with family chairmen and those with non-family interlocking chairmen do not. The behavior is moderated by regional institutional development.

Family Governance, Vertical Interlocks and the Use of Related Party Loan Guarantees in Chinese Business Groups

Loan guarantees to related parties by affiliated subsidiaries within family controlled pyramids form a means by which the controlling family expropriates value from minority shareholders. The controlling family, however, will attempt to escape blame for the behavior. Using a sample of 1785 listed Chinese firms affiliated with family-controlled business groups, we explore how family governance structure affect the use of related party loan guarantees. As hypothesized, we find that affiliates with non-family chairmen, but with family directors or senior executives, issue larger volumes of loan guarantees to related parties, whereas affiliates with family chairmen and those with non-family interlocking chairmen do not. The behavior is moderated by regional institutional development.

Explaining related party transactions in commercial banking: looted lending and information-based investments

In the context of constrained credit markets, the information view of related party transactions (RPTs) is used to argue that such transactions are efficient, as they make the best use of limited information. The looting view of RPTs is, however, used to make the opposing argument – during periods of financial distress, bank insiders use their control over lending policies to loot banks. Properly understanding RPTs, minimizing the attendant risks and capitalizing on any extant informational advantages will only be possible when the motivations behind such transactions are investigated. Using dynamic OLS and error correction methodologies, this article examines the conditions under which commercial banks engage in RPTs to ascertain whether evidence can be found for either the looting or information views. The results indicate that the looting and information-based motivations distinctly and separately impact on different types of RPTs, with related party loans (RPLs) being influenced more heavily by lootin...

Determinants of the Credit Risk in the GCC: An Empirical Study

This paper uses the database on 38 GCC banks for years 2007-11 to explore potential feasibility of limiting the credit exposures of banks in light of the factors that led to deterioration of their loan portfolios. Specifically it covers impact of pre-crisis exposures and corporate governance issues on the dynamics of the loan book quality and credit losses of selected banks. The results suggest substantial underprovisioning on related party loans.

Political Connections, Founding Family Ownership and Leverage Decision of Privately Owned Firms

In this paper, we examine the effect of political connections versus founding family ownership on the relationship between disproportional ownership structure and leverage decisions of privately owned firms listed in Chinese market. We find that disproportional ownership has positive effect on leverage, indicating that controlling shareholder tends to use both disproportional ownership structure and debt to expropriate. We also find that the interacted term between disproportional ownership and political connections has a positive impact on leverage ratio, and disproportional ownership structure is negatively related with leverage ratio of founding-family controlled firms, which indicate a substitute effect between political connections and founding-family ownership for the impact of disproportional ownership on leverage ratio. Finally, we provide evidence that controlling shareholder of firms with disproportional ownership structure tends to use more related party loans for tunnelling. We argue that under China’s weak creditor protection institutions, political connections of chairman or CEO provide better access to financing for private-owned firms, but also provide excess external resources for controlling shareholder to expropriate. However, founding-family ownership can largely mitigate the tunnelling effect of controlling shareholder while privately controlled firms through taking-over from former State owned firms tends to facilitate the tunnelling effect of controlling shareholder through its political connections.

Debt and Expropriation

We regress leverage on an index of corporate exposure to expropriation by the controlling shareholder - the ratio of his ownership rights O to his control rights C - and on an index of creditor rights. Amongst corporations that can access related party loans, a lower O/C ratio increases leverage when creditor protection is weak; but reduces leverage where creditor protection is strong. In the first case, higher leverage gives the controlling shareholder control of more resources to expropriate. In the second case, minority shareholders and external lenders constrain the leverage of group affiliates that seemed more vulnerable to expropriation.