Revenues from related parties: A risk factor in Italian listed company financial statements

Abstract

In recent decades, related party transactions (RPTs) have played a prime role in major corporate scandals, obliging regulators to strengthen the rules with new bans and expensive requirements on companies. This study aims to contribute to the literature on RPTs, providing evidence to justify increasingly expensive and mandatory regulation. Results show that the intensity of related party revenues increases where a company has lost profitability as well as turnover.

The influence of profitability on related party revenues

“…RPT profits (or losses) are calculated as the difference between the total revenue from RPTs and the total cost arising from RPTs and ROI. Bava and Gromis di Trana (2015b) expanded this analysis, verifying through an OLS model the relationship between the intensity of RPTs (related revenues against total revenues) and the variation in profitability (ROI 2011minus ROI 2010. The sample consists of the 100 highest capitalised Italian companies in 2010 and 2011.…”

“…With regard to the independent variables, ROI is the most common indicator used in previous studies (Moscariello, 2012;Pozzoli and Venuti, 2014;Bava and Gromis di Trana, 2015b) concerning profitability.…”