Related Party Transactions, Family Firms and Firm Performance: Some Malaysian Evidence

Abstract

We examine the link between related party transactions (RPT) and firm performance, and also whether RPT in family firms are more likely to be used opportunistically to expropriate minority shareholders, hence lower the firm performance. Using regression analysis of 462 Malaysian companies, we show that RPT is negatively associated with firm performance. Further, we also show that this association is stronger for family firms than non-family firms. The findings suggest that RPTs carried out by family firms, are more likely to be used opportunistically to expropriate minority shareholders. The evidence is consistent with entrenchment hypothesis and tunneling.

Keywords: Malaysia, Corporate Governance, Related Party Transactions, Family Ownership, Firm Performance