Related party transactions, disclosure and ownership structure in Brazil

Abstract

This article investigates the association between RPTs, disclosure, ownership structure, and performance in Brazil and uses a hand-collected sample of 3,790 Brazilian RPT contracts obtained from corporate filings of a representative and randomly drawn sample of public companies from 2010 through 2012. Firms with greater conflicts of interest potential may employ less RPTs to signal that there will be no abuse. There is a negative and significant relationship between RPT values and accounting performance, but the same is not true for market value. The evidence in this article contrasts with that presented in national surveys by Matos and Galdi (2014) and Silveira, Prado, and Sasso (2009a), which may reflect different methodological choices. Companies and market participants may realize that some types of RPTs are beneficial and others harmful to minority shareholders and their short and long term impacts on performance are not the same. The evidence suggests that both the hypothesis of efficient economic transactions and of the conflict of interest may have merit depending on the type of RPT and the performance metrics.