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Buy High, Sell Low: How Listed Firms Price Asset Transfers in Related Party Transactions

41 Pages Posted: 20 Oct 2008 Last revised: 3 Nov 2008

Stephen Yan-Leung Cheung

City University of Hong Kong (CityUHK) - Department of Economics & Finance

P. Raghavendra Rau

University of Cambridge

Aris Stouraitis

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

Yuehua Qi

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: September 20, 2008

Abstract

We examine a sample of 254 related party and arms' length acquisitions and sales of assets in Hong Kong during 1998-2000. Our analysis shows that publicly listed firms enter deals with related parties at unfavorable prices compared to similar arms' length deals. Firms acquire assets from related parties by paying a higher price compared to similar arms' length deals. In contrast, when they sell assets to related parties, they receive a lower price than in similar arms' length deals. With the exception of audit committees, corporate governance characteristics have limited impact on transaction prices. Firms with audit committees on their boards pay lower prices to related parties for acquisitions and receive higher prices from related parties from divestments.

Keywords: International corporate governance, Expropriation, Related party transactions, Tunneling

JEL Classification: G15, G34, K33

Suggested Citation

Cheung, Stephen Yan-Leung and Rau, P. Raghavendra and Stouraitis, Aris and Qi, Yuehua, Buy High, Sell Low: How Listed Firms Price Asset Transfers in Related Party Transactions (September 20, 2008). Available at SSRN: https://ssrn.com/abstract=1286883 or http://dx.doi.org/10.2139/ssrn.1286883

Stephen Yan-Leung Cheung

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
+852 2788 7960 (Phone)
+852 2788 8806 (Fax)

P. Raghavendra Rau

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Aristotelis Stouraitis (Contact Author)

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )

Hong Kong

Yuehua Qi

affiliation not provided to SSRN

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