Related Party Transactions Research Articles

Separating abusive from efficient related-party transactions: evidence from India

PurposeThe aim of this study is to understand a family firm's choice of related-party transaction (RPT) types and analyze their value impacts to separate the abusive from benign RPTs.Design/methodology/approachIt uses a 10-year panel of BSE-listed 378 family (and 200 non-family) firms. The fixed effects, logit and difference-in-difference (DID) models help examine value effects, propensity and persistence of harmful RPTs.FindingsLoans/guarantees (irrespective of counterparties) destroy firm value. Capital asset RPTs decrease the firm value but enhance value when undertaken with holding parties. Operating RPTs increase firm value and profitability. They improve asset utilization and reduce discretionary expenses (especially when made with controlled entities). Family firms have larger loans/guarantees and capital asset volumes but have smaller operating RPTs than non-family firms. They are less likely to undertake loans/guarantees (and even operating RPTs) and more capital RPTs vis-à-vis non-family firms. Family firms persist with dubious loans/guarantees but hold back beneficial operating RPTs, despite RPTs being in investor cross-hairs amid the Satyam scam.Research limitations/implicationsRent extractability and counterparty incentives supplement each other. (1) The higher extractability of related-party loans and guarantees (RPLGs) dominates the lower extraction incentives of controlled parties. (2) Holding parties' bringing assets, providing a growth engine and adding value dominate their higher extraction incentives (3) The big gains to the operational efficiency come from operating RPTs with controlled parties, generally operating companies in the family house. (4) Dubious RPTs seem more integral to family firms' choices than non-family firms. (5) Counterparty incentives behind the divergent use of RPTs deserve more research attention. Future studies can give more attention to how family characteristics affect divergent motives behind RPTs.Practical implicationsFirst, the study does not single out family firms for dubious use of all RPTs. Second, investors, auditors or creditors must pay close attention to RPLGs as a special expropriation mechanism. Third, operating RPTs (and capital RPTs with holding parties) benefit family firms. However, solid procedural safeguards are necessary. Overall, results may help clarify the dilemma Indian regulators face in balancing the abusive and business sides of RPTs.Originality/valueThe study fills the gap by arguing why some RPTs may be dubious or benign and then shows how RPTs' misuse depends on counterparty types. It shows operating RPTs enhance operating efficiencies on several dimensions and that benefits may vary with counterparty types. It also presents the first evidence that family firms favor dubious RPTs more and efficient RPTs less than non-family firms.

The Influence of Profitability, Taxes, and Foreign Ownership on Transfer Pricing (An Empirical Study on Manufacturing Companies Listed on the Indonesia Stock Exchange from 2015-2021)

The main point of this study is that transfer pricing, which is used by multinational companies to settle prices and transactions between divisions, allows businesses to reduce internal prices for commodities, services, and unwanted or excessive assets. The purpose of transfer pricing is to manage transfer prices between businesses with the specific goal of increasing the total tax liability within the company. The study population consisted of 143 manufacturing companies listed on the Indonesia Stock Exchange (BEI) between 2015 and 2021. For the quantitative research type, 15 companies were selected using purposive sampling as the research sample. The information used was secondary data, namely the companies' financial records obtained from www.idx.co.id. Descriptive statistics, classical assumption tests, multiple regression analysis, outliers, F-statistics tests, and F-statistics tests were the data analysis techniques used. Transfer Price, the dependent variable of the study, was represented by RTP (Related Party Transaction). Profitability, Taxes, and Foreign Ownership were the independent variables used. Multiple regression analysis using SPSS 20 was the analytical approach employed in this research. According to the findings of this study, Profitability, Taxes, and Foreign Ownership do not simultaneously impact Transfer Pricing. The findings in this research explain that foreign ownership and taxes do not influence transfer pricing, nor do profits or taxes have any relationship with transfer pricing.

Related Parties Transactions and Firm Value: Intermediate Effect of Sustainability Performance

Bu çalışmada, ilişkili taraf işlemlerinin firma değerine etkisinde sürdürülebilirliğin aracı rolünün incelenmesine yönelik bir araştırma yapılmıştır. Çalışma, BİST 100 endeksinde işlem gören ve 2015-2021 yılları arasında düzenli olarak sürdürülebilirlik raporlaması yayımlayan 23 adet işletme şeklinde toplam 163 adet gözlemden oluşmaktadır. Çalışmada, dinamik panel tahmin yöntemlerinden biri olan Genelleştirilmiş Momentler Metodu kullanılmıştır. Çalışma sonuçlarına göre, ilişkili taraf borçlarının firma değeri üzerinde pozitif yönde, ilişkili taraf satışlarının ve alımlarının ise firma değeri üzerinde negatif yönde bir etkisi vardır. Ayrıca gerek sürdürülebilirlik gerekse sürdürülebilir sosyal sorumluluk faaliyetlerinin ilişkili taraf işlemleri ile firma değeri arasındaki ilişkiye aracılık ettiği tespit edilmiştir.

Dialect connectedness and tunneling: evidence from China

PurposeThis study aims to examine the effects of dialect connectedness between the chairman and the chief executive officer (CEO) (DCCC) on the tunneling activities of controlling shareholders.Design/methodology/approachThis study uses abnormal related-party transactions (ARPT) as a proxy for tunneling activities and traces dialects of chairmen and CEOs based on the respective birthplace information. Baseline results are examined using a fixed-effects model. The results remain robust when using the instrumental variable approach, propensity score matching (PSM) technique, changing the measurement of tunneling and Heckman two-step selection model.FindingsThe results show that DCCC reduces tunneling activities. This negative association is more pronounced for non-state-owned enterprises and firms whose chairmen and CEOs work in the respective hometowns. DCCC restrains tunneling activities through mechanisms by establishing an informal supervisory effect on CEOs because the CEOs fear reputational damage and strengthening cooperation between chairmen and CEOs. Further analyses suggest that this negative association is more significant when chairmen and CEOs are non-controlling shareholders, but the association is weakened during the coronavirus disease 2019 (COVID-19) crisis.Originality/valueAs dialect is a carrier of culture, this study's results imply that cultural proximity can replace formal mechanisms to enhance corporate governance.

How Do Banks Set Their Propping Behavior Through Related Party Transactions During a Bail-In Regime? Evidence From an Emerging Market

This study investigates the impact of the enactment of bail-in regimes in 2016 in Indonesia on bank owners' propping behavior. Based on Indonesian banking data for the period 2011–2020, we use the difference-in-differences method to examine whether related party transactions substantially increase or decrease after the introduction of bail-in as an indicator of propping. We find that while the requirement for sufficient capital allocated to shock absorbance increases, bank owners may provide capital via related deposits. These deposits are typically beneficial to bank stability, increase liquidity, and can act as a propping channel. However, the deposits are also more exposed to risks, and consequently decrease.

Numerological superstition and earnings management: evidence from China

PurposeAn emerging line of research examining the role of numerological superstition in the capital market shows that it has significant impact on investor behavior (Bhattacharya, Kuo, Lin, & Zhao, 2018; Hirshleifer, Jian, & Zhang 2018). However, to the authors’ best knowledge, there is a dearth of evidence on whether numerological superstition affects corporate behavior. This study fills this void by examining the association between investors’ numerological superstition and earnings management using Chinese data.Design/methodology/approachChinese culture views 6 and 8 as lucky numbers. Using Chinese publicly traded firms, the authors examine the relation between investors’ numerological superstition and corporate financial reporting behavior.FindingsThe results suggest that firms reporting lucky earnings-per-share (EPS) numbers ending with 6 or 8 are more likely to engage in earnings management. These firms also raise more capital through seasoned equity offerings in the following year; however, they do not have more capital investments. Instead, their controlling shareholders siphon a significant amount of capital through related party transactions. Overall, the findings suggest that managers collude with controlling shareholders to manage earnings by exploiting the superstitious beliefs of minority shareholders.Originality/valueTo the authors’ best knowledge, there is a dearth of evidence on whether numerological superstition affects corporate behavior. This study fills this void by examining the association between investors’ numerological superstition and earnings management using Chinese data.

Capital Intensity, Earning Management and Tax Aggressiveness: The Moderation Role of Related Party Transactions

This study aims to determine the effect of capital intensity and earnings management on tax aggressiveness with related party transactions as a moderator. Actions of tax aggressiveness carried out by the existence of company management policies have an impact on the government. The resulting impacts include declining tax revenues in Indonesia due to a reduction in the tax burden that should be paid. The objects in this study are manufacturing companies listed on the Indonesia Stock Exchange, namely in the period 2016 – 2020. This research uses a quantitative approach, purposive sampling method, and with secondary data. From the criteria set out in this study, a total of 275 company financial reports were obtained for analysis. The results of the tests in this study indicate that earnings management has a significant positive effect on tax aggressiveness, related party transactions are able to moderate and also have a significant positive effect on earnings management on tax aggressiveness. While capital intensity has no effect on tax aggressiveness as well as related party transactions are not able to moderate capital intensity on tax aggressiveness.

Pengaruh Transaksi Pihak-pihak Istimewa terhadap Manajemen Laba: Kepemilikan Institusional sebagai Variabel Moderasi

The purpose of this study was to investigate the effect of related party transactions on earnings management. This study also investigates the role of institutional ownership as a moderator on the effect of related party transactions on earnings management. This study uses agency theory to explain the relationship between variables. The research population consists of all manufacturing companies listed on the Indonesia Stock Exchange. The sample selection used a purposive method which produced 225 observational data. The analytical method used is moderation regression analysis. The results of this study indicate that partially related party transactions have a positive and significant effect on earnings management. Institutional ownership is able to significantly weaken the relationship between related party transactions on earnings management and act as a quasi moderator.

Examining California nursing home profitability and related factors before and during the COVID-19 pandemic.

The financial status of nursing homes (NHs) is a policy concern, especially during a pandemic, because of the higher costs associated with infection prevention and resident care. This exploratory study was designed to assess the impact of the federal and state COVID-19 funding support on California NHs profitability during 2020, the first year of the pandemic, compared with 2019, the last pre-pandemic year. The study examined the association of Medicare and Medicaid days, related-party transactions, as well as other facility characteristics on net income profit margins, using cross-sectional regression analysis of data from state NH cost reports and federal NH provider data for 2019 and 2020. California skilled NHs had average reported net income profit margins of 2.26% in 2019 and 7.0% in 2020 with wide variations (from a loss of about 48% to a gain of 74% in 2020). Regression analysis found that the number of beds, occupancy rates, high-quality rating scores, and medium and high proportions of Medicare resident days were positively associated with net income margins in 2019 and 2020. Chains in 2020 (but not 2019), related-party expenditures in 2019 and 2020, median Medicaid days (in 2019), high Medicaid resident days (71%-73% or higher) in 2019 and 2020, and medium and high managed care resident days were negatively associated with net income margins in both years. Although NH admissions and occupancy rates declined substantially between 2019 and 2020, some (but not all) California NHs had a substantial increase in profit margins in 2020 over 2019. More studies of nursing home financial patterns and profitability are needed to examine trends over time and variations across states.

The Importance of Shariah Governance in the Banking Industry in Saudi Arabia and the Case of Shariah Committee Members as Related Partie

Background: Saudi Arabia has become an important economic player in the world. Based on this strategic importance, the banking sector had to keep pace. As a result, the Shariah Governance Framework was put in place in February 2020, as banks in Saudi operate in accordance with the requirements of Islamic laws. Therefore, shariah governance is important in the Islamic banking industry, The Shariah Governance framework was issued to control the growth in financial assets, and the first issuance of such a framework needed comprehensive studies. Therefore, due to the lack of local and international research focused on the Saudi corporate governance infrastructure, specifically related parties, the significance of this paper lies in the academic impact and the impact it has on the field practitioners, as it will try to identify the concept of shariah committee members and their re-addition as related parties and disclosures. This research paper aims to study a key principle in corporate governance, that is, the conflict of interest that can be defined under Related Parties Transactions. Specifically, this study will focus on the Shariah Committee Members as Related Parties in the Banking sector in Saudi Arabia. Methods: The researchers used primary and secondary resources. Results: This paper concludes with some findings related to the Shariah Governance Framework and the narrowed topic of this paper, which is the Shariah committee members as related parties. Although it was an important step to re-add the members, there is a need to improve the current regulatory structure.

The Effect of Related Party Transaction on Tax Aggressiveness


 
 
 
 Tingkat efektivitas pembayaran pajak di Indonesia saat ini masih belum maksimal. Salah satunya dikarenakan masih adanya agresivitas pajak dalam perusahaan teknologi. Penelitian ini bertujuan untuk menguji pengaruh transaksi hubungan istimewa terhadap Agresivitas pajak. Agresivitas pajak diukur dengan menggunakan Effective Tax Rate (ETR). Data yang digunakan dalam penelitian ini adalah data sekunder berupa laporan keuangan perusahaan sektor teknologi yang terdaftar di BEI tahun 2020-2021. Sampel penelitian didapatkan dengan menggunakan purposive sampling sehingga diperoleh sebanyak 39 data dari 70 perusahaan yang terpilih sebagai sampel.Teknik analisis data yang digunakan dalam penelitian ini adalah persamaan regresi berganda. Hasil dari penelitian ini menunjukkan bahwa transaksi penjualan hubungan istimewa dan transaksi pembelian hubungan istimewa tidak berpengaruh secara signifikan terhadap agresivitas pajak sedangkan hasil dari transaksi pinjaman hubungan istimewa yang berpengaruh secara signifikan terhadap agresivitas pajak.
 Keywords: Transfer Pricing, Agresivitas Pajak
 
 
 

특수관계자 거래가 주가지연현상에 미치는 영향

[Purpose]Korean firms have a characteristic that ownership is concentrated on specific people and relatives, and it has been reported that controlling shareholders pursue private interests through related party transactions. Firms report related party transactions through footnotes in financial statements, but the disclosure details are different for each firm. Therefore, firms with larger related party transactions have greater information asymmetry, so stock prices are not expected to immediately reflect transaction information.
 [Methodology]The sample period used in this study was from 2011 to 2019, and an analysis was conducted on non－financial firms listed in the Korean stock market. Financial data and stock price data used in the analysis were extracted from the KIS－VALUE database, and data on related party transactions were collected from the TS2000 database. Referring to the study of Hou and Moskowitz (2005), stock price delay, a dependent variable of the study, was measured.
 [Findings]The level of related party transactions had a positive relationship with the stock price delay phenomenon. The result can be interpreted as a slower rate at which stock prices reflect corporate information because firms with larger related party transactions have lower information transparency. In addition, the positive relationship between the size of related party transactions and the stock price delay phenomenon was significant only in chaebol firms.
 [Implications]The results of this study call attention to investors so that they can make careful investment decisions in consideration of the fact that the larger related party transactions, the stronger the stock price delay may appear. In addition, it suggests that regulatory agencies need to reorganize related laws so that details of related party transactions are disclosed in order to prevent market abnormalities such as stock price delays.

Interplay Between Customs Valuation and Transfer Pricing in the European Union: General Observations and Administrative Practices in Four Countries After the Hamamatsu Case

Although related party transactions account for most of the international trade transactions, they present a unique set of challenges when it comes to accurately representing the actual value of the transaction. Given the different objectives pursued, transfer pricing and customs law approach the issue in quite different ways, which often leads to discrepancies, complications and inconsistencies to be addressed by multinational businesses. The international business community and international organisations aim for an alignment of the two approaches, but so far, no concrete legal solutions have been reached. In the market of the European Union (EU), the European Court of Justice (ECJ) addressed the issue of the potential interplay between the two legal systems in the Hamamatsu Photonics Deutschland GmbH Case (Hamamatsu Case). However, the position held by the ECJ is not clear, nor are the consequences arising from this case law. The result is that a stronger alignment between the two depends to a large extent on the administrative practices in the local EU countries. This article aims at providing a comprehensive examination of the current strategy used by several member states (Spain, Italy, the Netherlands and Germany) both before and after the Hamamatsu Case, and explores local practices used to reconcile transfer prices and customs values. Furthermore, in the light of the current fragmented administrative national practices, we present some proposals to amend the Union Customs Code (UCC) that may improve the clarity and fluidity of the interrelationship between transfer pricing and customs valuation in the case of related party transactions.

Fraudulent financial reporting and related party transactions

The study assessed the possibility of accounting fraud among Zambian listed companies with a focus on the mining sector and the relationship between related party transactions (RPTs) and financial statement manipulation (FSM). The financial statements (2012 to 2020) of listed companies were analysed to detect accounting fraud using the M-score and the Z-score. Descriptive statistics were used to explain the extent of FSM. The Chi-Square test of independence was employed to test the relationship between FSM and RPTs. Both the Z-Score and M-Score indicate that the mining companies were possibly involved in FSM. There is a relationship between the FSM and RPTs. The Total Accruals to Total Assets, Days in Sales in Receivables Index and Sales Growth Index show that revenue and profits were the most manipulated. The RPTs disclosures were the lowest for mining companies. Relevant authorities should not neglect FSM as a form of fraud despite the routine external audit of financial statements. There is the potential loss of tax revenue through accounting fraud.

Awareness of Shareholder Engagement among Sub-Brokers, Investment Advisors and Shareholders

Companies Act 2013 has given legal protection to shareholders’ rights. It has granted new rights to minority shareholders, such as; i) Approval of shareholders for amending the company's memorandum of association/articles of association, ii) Right to appoint and remove Directors, iii) Approval of shareholders for obtaining loans, iv) Approval of shareholders for Related Party Transactions, v) Right to appoint Auditor, vi) Right to Grievance Redressal Mechanisms, vii) Filing Class and Derivative actions suits, etc. Against the backdrop of this, the present study was undertaken by the researcher. The study aims to investigate the awareness of Shareholder Engagement among Sub-Brokers, Investment Advisors and Shareholders. The study was conducted in major cities of North Karnataka and Hyderabad-Karnataka covering Kalburagi, Bellary, Belagavi, Vijayapura and Hubli-Dharwad cities. Primary data was collected through a questionnaire. The result of the study reveals that; i) The majority of Sub-Brokers and Investment Advisors were unaware of the concept of Shareholder Engagement, ii) The majority of Sub-Brokers and Investment Advisors were unaware of a) Investor Relationship Policy implemented by companies, b) Investors Road Show conducted by companies, c) Board- Shareholder Dialogue conducted by companies, iii) None of the Sub-Brokers and Investment Advisors are aware of working of Proxy Advisory Firms, filing Class and Derivative actions suits by shareholders, iv) None of the shareholders are aware of the out concept of Shareholder Engagement, Board-Shareholder Dialogue, the existence of Proxy Advisory Firms and Shareholder Association. The study is expected to help the Government of India and SEBI to chalk out policies for stronger Shareholder Engagement. The outcome of the study also expected the Proxy Advisory Firms to develop marketing strategies to reach out to investors.

Audit fees and related party transactions: Evidence from Indonesia

This study empirically examines the impact of related party transactions on audit fees, focusing on distinguishing between tunneling-type and propping-type related party transactions. We investigate this causal relationship by analyzing the influence of various related party transactions on audit fees at the account level, allowing us to pinpoint the specific transactions that exert a more substantial influence on audit costs. Our research sample comprises 127 Indonesian manufacturing firms listed on the Indonesian Stock Exchange during the years 2020-2021, resulting in a dataset of 254 observations. Audit fees are quantified using the natural logarithm of the disclosed annual audit fees. We assess tunneling-type related party transactions by examining the proportion of assets and expenses involved in these transactions, breaking them down into categories such as account receivables, other receivables, and other assets. Similarly, propping-type related party transactions are evaluated based on the proportion of liability-based and sales-based transactions, further disaggregated into account payables, other payables, and other liabilities. Our hypothesis testing relies on a Panel Data Regression analysis model. Our findings reveal that tunneling and propping-type related party transactions significantly increase audit fees. Notably, we demonstrate that tunneling-related party transactions exert a more substantial impact on audit fees than propping-related party transactions, highlighting the significance of agency theory in understanding the risks associated with related party transactions.

Related party transactions and firm value in an emerging market: Does corporate social responsibility matter?

This study investigates the effect of related party transactions (RPTs) on firm value (FV) with moderating role of corporate social responsibility (CSR) in the context of an emerging market. For a sample of 625 listed firms on the Vietnamese Stock Exchange from 2015 to 2019, we do quantitative analysis utilizing the appropriate method for panel data with modification to strengthen the study’s robustness. We design a regression model to test the result. According to the findings of the study, RPTs have an effect on corporate value. This is in keeping with the belief that CSR reporting, which represents a company’s ethical concerns, might act as a deterrent to opportunism by management. Our study makes recommendations to improve transaction transparency with corporate stakeholders, contributing to the growth of the Vietnamese stock exchange.

The Role of Good Corporate Governance in the Relationship between Family Ownership and Institutional Ownership with Related Party Transactions

The Role of Good Corporate Governance in the Relationship between Family Ownership and Institutional Ownership with Related Party Transactions

Multinational Corporate Tax Avoidance in Indonesia

Purpose: This study aims to examine and analyze the effect of foreign ownership, foreign directors, transfer pricing, and multinational corporation on tax avoidance.
 
 Design/methodology/approach: The population of this study is multinational corporations listed on the Indonesia Stock Exchange for the period 2016-2019. Using the purposive sampling technique, the sample obtained according to the criteria is 280 observations. Data analysis was using eviews 9 software based on panel data.
 
 Findings: The results showed that foreign ownership had no significant effect on tax avoidance. Furthermore, foreign directors have no significant effect on tax avoidance. Likewise, transfer pricing as a proxy for related parties transactions also has no significant effect on tax avoidance. In contrast, the multinational corporation positively and significantly affects tax avoidance.
 
 Research, Practical & Social implications: Foreign ownership, foreign director, and transfer pricing become the primary basis factors for tax avoidance of multinational corporations in Indonesia.
 
 Originality/value: This study provides an academic contribution regarding the factors that influence tax avoidance by multinational corporations.

Kepemilikan Manajerial dan Kepemilikan Institusional terhadap Related Parties Transactions Dengan Kepemilikan Minoritas Sebagai Pemoderasi Studi Pada Industri Tambang Sektor Batubara terdaftar di Bursa Efek Indonesia Periode 2015-2021

This study aims to analyze Managerial Ownership and Institutional Ownership of Related Parties Transactions with Minority Ownership as Moderators. The object of this research was the Coal Sector Mining Industry listed on the Indonesia Stock Exchange for the 2015-2021 period. The population in the study amounted to 23 companies with the sampling method using purposive sampling. The sample numbered 6 sample companies with sample data totaling 42 pooled observation data. The analysis used is multiple regression analysis to test data and hypothesis statements. The results of this study are that minority ownership is able to moderate institutional ownership of RPT so that coal mining companies listed on the IDX are able to maintain RPT efficiency through effective supervision by institutional ownership. Minority ownership is also able to moderate institutional and managerial ownership, RPT efficiency can be maintained through effective supervision by the collaboration of institutional and managerial ownership.