Related Party Transactions, Corporate Governance and CEO Compensation

41 Pages Posted: 5 May 2017

See all articles by Steven Balsam

Steven Balsam

Temple University - Department of Accounting

John Puthenpurackal

University of Nevada, Las Vegas - Department of Finance

Date Written: May/June 2017

Abstract

Examining the years 2001–2012, we document a decrease in reported CEO related party transactions (RPTs) and an increase in reported outside director RPTs, with the largest change occurring around the 2006 Securities and Exchange Commission (SEC) RPT disclosure changes. Our analysis of the determinants of RPTs and their association with CEO compensation also shows an impact of the SEC disclosure change, as we find support for the weak governance hypothesis in the pre‐2006 period and some support for the efficient contracting hypothesis post‐2005. While our results vary by model, pre‐2006, consistent with weak governance we find that outside director RPTs are positively associated with CEO compensation, with our estimates of the impact ranging from 8 to 18% depending on the model. In the post‐2005 period, this result dissipates, and we find some evidence consistent with the efficient contracting hypothesis. Overall we find that the SEC RPT disclosure change appears to have had a significant impact on reported RPTs, the determinants of those RPTs, and the impact of those RPTs on CEO compensation.

Keywords: related party transactions, corporate governance, CEO compensation

Suggested Citation

Balsam, Steven and Puthenpurackal, John, Related Party Transactions, Corporate Governance and CEO Compensation (May/June 2017). Journal of Business Finance & Accounting, Vol. 44, Issue 5-6, pp. 854-894, 2017. Available at SSRN: https://ssrn.com/abstract=2962705 or http://dx.doi.org/10.1111/jbfa.12245

Steven Balsam (Contact Author)

Temple University - Department of Accounting ( email )

306 Speakman Hall
Philadelphia, PA 19122
United States
215-204-5574 (Phone)
215-204-5587 (Fax)

HOME PAGE: http://www.sbm.temple.edu/~drb/

John Puthenpurackal

University of Nevada, Las Vegas - Department of Finance ( email )

4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States

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