Promoter Ownership, Related Party Transactions and Firm Performance: A Study Among Selected Companies in India

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.

Board composition and firm performance: empirical evidence from Indian companies

“…Global Financial Crisis). At the same time, these scandals have severely eroded investor confidence in the operation of capital markets, potentially destroying the capitalist system as a whole (PC et al, 2019). As a result, governance reforms, particularly those relating to board composition, have piqued the interest of regulatory organisations worldwide.…”

“…Global Financial Crisis). At the same time, these scandals have severely eroded investor confidence in the operation of capital markets, potentially destroying the capitalist system as a whole (PC et al. , 2019).…”

The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia

“…The globalization of business groups adds to the agency problem, as management requires a commensurate increase in discretionary power. This development needs proper corporate governance frameworks for business groupings to ensure management and shareholder interests are aligned (Rasheed et al, 2019;Saleh, 2021). Despite the importance of corporate governance factors in developing multinational corporations, relatively few literature sources have explored various governance factors that can affect RPTs in emerging markets.…”

“…RPTs are not legally Investment Management and Financial Innovations, Volume 18, Issue 4, 2021 http://dx.doi.org/10.21511/imfi.18 (4).2021. 15 prohibited because they are considered typical business transactions and assist the efficient resource allocation among affiliated firms within business groups (Rasheed et al, 2019). This is a severe corporate governance problem, and to resolve it, it is necessary to examine which corporate governance processes in Indonesia fail and thereby facilitate asset appropriation (Santosa, 2020;Hendratama & Barokah, 2020).…”