Related Party Transactions Research Articles

Apakah Dewan Komisaris Independen Mempunyai Peran Sebagai Variable Moderasi atas Related Party Transaction, Struktur Modal dan Ukuran Perusahaan terhadap Nilai Perusahaan?

The aim of this study is to investigate the effects of related party transactions and overall business value on capital structure, company size, and an independent board of commissioners. The manufacturing businesses in the food and beverage subsector that were listed on the Indonesia Stock Exchange between 2017 and 2021 are the focus of this study. The research sample consisted of 60 data points from 12 firms that fulfilled predefined parameters, chosen through the use of purposeful sampling. This study employs a quantitative methodology, with Eviews software serving as the analysis tool. The study's findings demonstrate that the value of a firm is not significantly impacted by transactions involving related parties. On the other hand, a company's value is greatly influenced by its size and capital structure. The independent board of commissioners does not lessen the effect that capital structure and related party transactions have on the value of the company. Nonetheless, the effect of a company's size on its value might be lessened by an impartial board of commissioners. The following policies can be implemented by the business world based on the consequences of the research: First, the business sector needs an optimal capital structure, which includes using debt with suitable limits, in order to draw investors and build company value. In addition, using debt might lessen the tax liability of the business. Secondly, in order to draw in investors, big businesses need to manage their assets well.

Effect of Related Party Transaction, Profitability, Leverage, and Capital Intensity on Tax Avoidance with Firm Size as a Moderating Variable in Food and Beverage Sub-Sector Manufacturing Companies Listed on the Indonesia Stock Exchange 2018-2022

This research aims to determine and test the influence of related party transaction receivables, related party transaction debt, profitability, leverage, and capital intensity on tax avoidance in food and beverage sub-sector manufacturing companies listed on the Indonesia Stock Exchange for the 2018-2022 period and to test whether Firm size can moderate the relationship between the independent variable and the dependent variable. The population in this study was 26 companies. The sampling method uses purposive sampling, and the number of observation samples is 130 companies. This type of research is quantitative descriptive by testing classical assumptions and Multiple Regression Analysis (MRA) testing, which uses two regression equations. The analysis technique used is with SPSS software tools. This research shows that profitability, leverage, and capital intensity positively and significantly affect tax avoidance. Meanwhile, related party transactions receivables and associated party transactions accounts payable do not affect tax avoidance. The variable firm size can moderate the relationship between the influence of related party transactions on debt, profitability, leverage, and capital intensity on tax avoidance. The firm size variable cannot moderate the relationship between the influence of related party transaction receivables on tax avoidance. Keywords: tax avoidance, firm size, related party transactions, leverage, profitability, and capital intensity

Efficiency and productivity growth in US food manufacturing industries: Exporters, ownership changes, and firm characteristics

AbstractThis study employs a stochastic production frontier framework to measure productivity growth among exporters, non‐exporters, and firms experiencing ownership changes through mergers and acquisitions in US food manufacturing. Analyzing a panel data set that integrates Economic Censuses and transaction‐level exports, the results reveal the coexistence of more productive exporters, driven by technical efficiency, alongside less productive non‐exporters. Exporters in arm's length transactions show productivity growth driven by technical efficiency change, while those in related party transactions benefit mainly from technological change. Firms undergoing ownership changes exhibit positive productivity growth with a greater contribution from technical efficiency compared to those without such changes.

Corporate Governance and Related Party Transactions in Global Supply Chains

Problem definition: As related party transactions (RPTs) increase in global supply chains, understanding the impact of corporate governance on such transactions becomes crucial for businesses. RPTs often lead to operational diversion due to power disparities between parent and its subsidiaries. In this study, we explore how operational diversion in RPTs within multinational firms is affected by the roles of foreign subsidiaries and corporate governance mechanisms. Methodology/results: Using a unique data set on RPTs of Korean multinational firms from 2006 to 2013, we compare the performance of multinational firms engaging in RPTs with two types of foreign subsidiaries: vertical and horizontal. We conduct our empirical analysis based on the adoption of International Financial Reporting Standards (IFRS) in Korea in 2011, which acts as a policy shock affecting corporate governance and deterring operational diversion. Our results show that the improvement in operational performance of a multinational firm following the IFRS adoption is more significant when the parent firm engages in transactions with vertical subsidiaries compared with horizontal ones. We further show that strong corporate governance mechanisms, such as internal governance, institutional ownership, and large shareholders, play a crucial role in restraining operational diversion in RPTs involving vertical subsidiaries. Managerial implications: The implications of our study extend to shareholders and auditors, highlighting the importance of prioritizing monitoring efforts concerning a parent firm’s RPTs with vertical subsidiaries, especially when corporate governance mechanisms are weak. In contrast, RPTs with horizontal subsidiaries are relatively robust against operational diversion, making them a natural deterrent to such malpractices. Funding: This work was supported by the Institute of Management Research at Seoul National University, the Hankuk University of Foreign Studies Research Fund [2023], and the Research Fellowship Fund of the Sangnam Institute of Management, Yonsei University [2020-22-0007]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.0372 .

Actions of Expropriation in Family Companies: The Moderating Role of Independent Commissioner’s Control

This study examines the effects of the pyramid structure and disclosure of related party transactions on acts of expropriation in family companies with the independent commissioner’s control as a moderation. This research is a type of quantitative research. This research uses secondary data from annual reports from 31 family companies in 2017- 2018. The data analysis techniques in this research are descriptive statistics, panel data regression analysis, and moderated regression analysis. The study finds that the pyramid structure does not affect expropriation, while disclosure of related party transactions has a negative effect on expropriation. The interaction test shows that the mediator variable could not mediate the pyramid structure and expropriation. Conversely, the moderating variable is able to moderate the disclosure of related party transactions and expropriation. The results of this research can provide input to policymakers to tighten regulations regarding protection for minority shareholders. In addition, the results of this research will add to the government’s references in expanding rules related to the disclosure of related party transactions, especially regarding the supervision of related party transactions carried out by companies.

Financial Risks, Related Party Transactions and Value of BUMN Companies in Indonesia

Purpose : The research investigates the influence of financial risk on the value of state-owned companies (BUMN) on the Indonesia Stock Exchange with related party transactions as a moderating variable. Method : The population in this research is all state-owned companies listed on the Indonesia Stock Exchange from 2015 to 2022. The sample selection technique uses purposive sampling methods. Data analysis uses regression testing with moderating variables. Findings : The results of this research show that financial risk has a negative effect on the value of state-owned companies in Indonesia. Related party transactions (RPT) have a moderating effect that strengthens the influence of corporate financial risk on the value of BUMN companies. Novelty : The research can prove the role of related party transactions as a moderating variable on the influence of financial risk and the value of BUMN companies. Keywords : Company Value; Financial Risk; Related Party Transactions; Bankruptcy; BUMN

Corporate Governance memoderasi Related Party Transaction dan Financial Distress terhadap Penghindaran Pajak

This study aims to examine the influence of related party transactions and financial difficulties on tax avoidance with corporate governance as moderating variable. corporate governance. This research uses a population of 92 companies in the consumer goods industry sector listed on the IDX in 2018-2022. The research sample was carried out using a purposive sampling method and obtained 125 company data that met the criteria. The data used is secondary data in the form of financial reports and company annual reports. Data were analyzed using a panel data regression analysis model and moderate regression analysis (MRA) test with E-Views 12 software. According to the findings of the study, related party transactions and financial distress have an effect on tax avoidance. Corporate governance cannot moderate the influence of related party transactions on tax avoidance. Corporate governance cannot moderate the influence of financial distress on tax avoidance.

Multiple large shareholders and M&A quality: evidence from China

ABSTRACT This study investigates the influence of the presence of multiple large shareholders (MLS) on the quality of mergers and acquisitions (M&A). Using data from the Chinese market, we find that the presence of MLS in acquiring firms is associated with a higher level of goodwill impairment in the three-year period following the completion of an M&A transaction, relative to firms devoid of such shareholder structures. The further analysis suggests that the identity of these shareholders is crucial; specifically, when the second-largest shareholder is identical to the controlling shareholder, the adverse effects on goodwill valuation are more significant. This relationship is mitigated when the identities of the controlling and the second-largest shareholders differ. The impact is particularly noticeable in transactions involving commitment performance contracts, related party transactions, and in sectors characterized by high goodwill valuations. This study contributes to the literature on the economic outcomes associated with MLS structures in China, a context marked by the prevalence of such ownership arrangements and limited minority shareholder protections.

International related-party trade, institutional differences and performance of foreign-funded enterprises

Based on the resource-based view, this paper attempts to analyze the impact of international related-party trade on the performance of foreign-funded enterprises in China from the perspective of value creation. The findings of this paper are as follows. (1) the greater the proportion of parent company to foreign-funded enterprises’ international related-party transactions, the better the performance of foreign-funded enterprises. (2) As the differences in legal systems increase, the role of international related-party trade in promoting performance is weakening. (3) As cultural differences increase, the role of international related-party trade in promoting performance is increasing. After considering the impact of transfer pricing, the conclusions of this paper remain unchanged.

Unconsolidated separate financial statements and dividends: Evidence from Korea

The purpose of this study is to investigate whether Korean parent firms manage dividend payments by taking advantage of the Commercial Act of Korea and accounting discretion allowed under the Korean IFRS. While IFRS adoption has transformed primary financial statements from unconsolidated to consolidated financial statements, the Commercial Act of Korea continues to compute distributable profits based on unconsolidated separate financial statements. The discrepancy between the earnings for financial reporting and the distributable profits provides an opportunity for a parent firm to manage dividends upward through internal transactions without affecting consolidated earnings. Using the parent firms listed on the Korea Exchange (KRX) during the period from 2001 to 2018, we examine whether these parent firms engage in dividend management through internal transactions to meet the dividend expectations of their shareholders in the post-IFRS period. We find that the parent firms with small consolidated but large unconsolidated earnings (‘SCLU’ firms) pay more dividends than others in the post-IFRS period when they have significant transactions with related parties. The dividend-increasing behavior of the SCLU firms through related-party transactions is more pronounced when the ownership of foreign shareholders or the largest shareholder is high. Our results suggest that Korean firms may pay excessive dividends by managing distributable profits despite poor consolidated performance in order to meet shareholders’ dividend demands.

Pengaruh Manajemen Laba, Intellectual Capital dan Related Party Transaction terhadap Integritas Laporan Keuangan: Studi pada Perusahaan Sektor Manufaktur yang Terdaftar di Bursa Efek Indonesia Periode 2018-2021

In order for the information obtained by users of financial statements to be accounted for by the firm, financial statements and statements by corporations must be provided honestly, correctly, and without distortion or concealment. Users use financial reports as a decision-making tool since they provide an overview of the performance and growth of the organization. Conservativeness proxies may be used to evaluate the reliability of the financial accounts. To minimize fraud in financial reports and mistakes in decision-making, conservative accounting is the practice of presenting financial statements that are full of caution against important uncertainties and risks to a commercial business's situation. The goal of this research is to assess the financial reporting accuracy of manufacturing sector businesses listed on the Indonesia Stock Exchange (IDX) from 2018 to 2021 in the areas of intellectual property, related party transactions, and earnings management. This study uses the manufacturing sector of the IDX as its sample population for the years 2018 through 2021. Purposive sampling was employed, and data was collected from 408 samples representing 102 different firms over the course of four years. Panel data regression analysis using the Eviews 10 software is used for this in-depth examination of the data, which involves several rounds of testing. Financial statement accuracy was shown to be impacted by the presence of related party transactions, intellectual property, and earnings management. Earnings management reduces financial statement reliability. On the other hand, related party transactions and intellectual property have no bearing on how accurate the financial records are.

Foreign shareholder, overseas sale and corporate profit margin.

China is actively promoting the development of a robust trading nation. In this context, utilizing data from China's A-share listed companies spanning from 2003 to 2021, this study investigates the impact of foreign shareholders on enterprises in a scenario where overseas sales reduce the profit margin of Chinese firms. The findings reveal that overseas sales do indeed decrease the profit margin of Chinese enterprises; however, foreign shareholders mitigate this negative effect and various robustness tests support this conclusion. Mechanism analysis confirms that foreign shareholders primarily enhance enterprise productivity through improved production technology spillover effects, thereby alleviating the adverse impact of overseas sales on Chinese firms' profit margins. Heterogeneity analysis demonstrates that both longer holding periods for foreign shareholders and multiple foreign shareholders significantly alleviate the negative influence of overseas sales on Chinese firms' profit margins. Moreover, there is significant heterogeneity in how foreign shareholders alleviate these detrimental consequences based on property rights nature, institutional environment, overseas related party transactions and subsidiaries, as well as industry attributes. These findings have important reference value for China's efforts towards becoming a strong trading nation and can contribute to enhancing trade capacity in other countries.

Transfer Pricing Documentation Methods in Nigeria: A Critique of the Prime Plastichem Case Against International Best Practices

The quest to ensure that the tax planning activities of multinational enterprises operating in Nigeria do not erode the country's domestic tax base has led to the enactment and enforcement of the Transfer Pricing (TP) Regulations, 2018 in Nigeria. The TP Regulation provides for a comprehensive framework to ensure that the pricing of related party transactions is consistent with global best practices on TP. The enforcement of the TP Regulation in Nigeria was taken a step further in 2020 when the Tax Appeal Tribunal affirmed the imposition by the Federal Inland Revenue Service (FIRS) of liability of over one billion naira on Prime Plastichem Nigeria Limited for failing to apply consistent TP methods in the financial years 2013 and 2014. While this decision was hailed as Nigeria's first decision of the Tax Appeal Tribunal (TAT) dealing with transfer pricing, the decision has been criticised for failing to apply the global standards for TP documentation. This article seeks to critique the principles of TP documentation espoused in the Prime Plastichem case vis-à-vis international best practices on transfer pricing documentation.

Субъектный состав оспаривания сделок, в совершении которых имеется заинтересованность: правоприменительный аспект

The legal regulation of interested-party transactions, since the establishment of relevant norms in domestic legislation, has subsequently acquired dynamic development and has been reformed more than once. Despite many positive changes in legislation, with the development of civil turnover and the practice of applying the rules on related-party transactions, the shortcomings inherent in the institution in question are increasingly being noticed, especially when challenging transactions. In this article, the author addresses the problem of determining the subject matter of challenging transactions in which there is an interest from the point of view of law enforcement judicial arbitration practice, and on its basis formulates conclusions and proposals.

Effect of Related Party Transaction and Tax Haven Utilization on Tax Avoidance Moderated by Country-by-country Reporting

This research investigates the influence of Related Party Transactions and Tax Haven Utilization on Tax Avoidance with and without Country-by-Country Reporting regulations, which were introduced in Indonesia at the end of 2016, as moderating variables. This research uses a purposive sampling method as sample selection. The data in this study was collected from the financial reports of 96 multinational companies registered between 2012 and 2021. To test the hypothesis, this study used regression with Random Effect Model. The results of this research are that Tax Haven Utilization has a significant effect on Tax Avoidance and Related Party Transactions have no effect on Tax Avoidance. Other results show that Country-by-Country Reporting regulations are unable to moderate the influence of Related Party Transactions and Tax Haven Utilization on Tax Avoidance. The findings of this research provide recommendations for the government to launch CbCR regulations in order to prevent tax avoidance through mechanisms for utilizing tax havens and related party transactions as well as increasing understanding of the principles of implementing CBCR.

A Study on Financial Fraud at Kangmei Pharmaceutical Based on the GONE Theory

In light of the frequent occurrence of financial fraud, this paper takes the financial fraud case of Kangmei Pharmaceutical as a research case. Drawing from relevant studies by domestic and international scholars and considering the prevalent occurrences of financial fraud at home and abroad, this paper employs case analysis and financial information comparative analysis methods. Using the actual case of Kangmei Pharmaceutical's financial fraud as an example, it summarizes the main fraudulent methods employed by Kangmei Pharmaceutical, including inflating revenue, forging accounting documents, establishing an unreasonable equity structure before financing, and fabricating profits through "related-party transactions." This paper also analyzes the motives for Kangmei Pharmaceutical's financial fraud in detail from four aspects of the GONE theory: Greed, Opportunity, Need, and Exposure. Additionally, it proposes governance measures and insights for countering financial fraud from these four perspectives. Finally, specific recommendations are presented based on the analysis results. This paper aims to provide innovative approaches and means for publicly listed companies to seek effective governance of financial fraud, regulate market operation, cultivate an ecosystem conducive to the healthy development of all parties, and protect the rights of investors in compliance with legal requirements.

Do cash holdings matter for transactions between affiliated firms? Evidence from BRICS countries

This study aims to look into the effect of cash holdings on related party transactions (RPTs). We also investigate whether the excess cash used for various types of RPTs has any effect on firm value. Our sample includes firms from Brazil, Russia, India, China, and South Africa (BRICS), and we find that RPTs have a negative impact on firm value in Brazil, Russia, India, and South Africa due to agency conflict. Tunneling has a negative impact on firm value in India and China due to the promoter’s opportunistic behavior. We also find that when excess cash is used for RPTs it enhances the firm value in BRICS countries. Using the difference in difference (DID) method, we discover that companies increase their RPT disclosure in the post-mandate compared to the pre-mandate period, augmenting their value. The level of monitoring must vary depending on the nature of RPTs. The negative impact of RPTs is mitigated when excess cash is used for such transactions and RPT disclosure is mandated. We contribute to the RPT literature by demonstrating that tunneling RPTs lower firm value in India and China. Regulators in these countries should implement stringent regulations to reduce value-destroying RPTs. Our findings support agency theory by suggesting that disclosing RPTs in annual reports reduces conflict between controlling and minority shareholders.

Impact of Outside Blockholders on Related Party Transactions and Book-tax Conformity Link

This study assesses the effects of transfer pricing audit rules in 2005 on related party transactions and book-tax conformity. Further, the presence of outside blockholder beneficially owning at least five percent of the company’s outstanding common stocks is examined. Data from 2003 to 2007 and 2018 of Taiwan-listed firms were collected from the Taiwan Economic Journal database and estimated by ordinary least squares using EViews. This study finds that book-tax conformity has no relation to related party transactions. The presence of outside blockholders is significant in the 2005 sample which might have resulted from an implementation of Transfer Pricing Assessment Rules. However, the presence of outside blockholder as an effective monitor over related party transactions – book-tax conformity link has no evidence. This paper offers evidence in an Asian context to enrich the discussion on related party transactions, book-tax conformity and outside blockholders. The finding is robust to an alternate measure of book-tax conformity.

Impact of Outside Blockholders Over Link between Independent Directors and the Normal and Abnormal Related Party Transactions

This study examines the effect of independent directors on related sales and related purchases using the normal and abnormal values from 2003 to 2022 of the total sample of 13,789 firms representing 89% of the total Taiwanese listed firms. As a second tier of independent external mechanisms, impact of outside blockholders, on the association between independent directors and related party transactions is examined. This study hypothesizes that the level of related party transactions varies with independent directors. Further, the connection between related party transactions and independent directors varies with the impact of outside blockholders. This study finds that a greater number of independent directors is significantly linked with lesser levels of normal related sales, lower levels of normal related purchases, and higher levels of abnormal related purchases. Thus, the hypotheses are confirmed. This study also finds that the extent of impact of outside blockholders supports a lower level of normal related purchases but higher abnormal related purchases, thus, the hypotheses are supported. Implications include that firms should strengthen their monitoring mechanisms to oversee both normal and abnormal related transactions, emphasizing the importance of regular board reviews. Additionally, the influence of outside blockholders on purchasing decisions underscores the need for companies to engage with these stakeholders to align strategies with shareholder interests.

Analysis of Factors Influencing Fraudulent Financial Statements: Pentagon Fraud Perspective and Managerial Ownership

Financial statement fraud poses a significant threat to the integrity of financial reporting and investor confidence so will become a threat to sustainability and business continuity. This study aims to analyze the factors that influence fraudulent financial statements from the perspective of the Pentagon fraud theory and managerial ownership. The fraud pentagon model consists of financial target, financial instability, independent commissioners, receivable related party transactions, debt related party transactions, change of auditor, change of directors, number of CEO photos and adding other variable managerial ownership. The population of this research is 108 companies on the IDX for the 2011-2020 period using a purposive sampling method. The sample consists of 54 fraud companies and 54 non-fraud companies. The research results prove that receivables related party transactions and changing auditors have positive effect on financial statement fraud. Meanwhile, the variables of financial target, financial instability, independent commissioner, debt related party transactions, change of directors, number of CEO photos and managerial ownership have no effect on financial report fraud.