Related Party Transactions

40 Pages Posted: 20 Jan 2005

See all articles by Mark J. Kohlbeck

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting

Brian W. Mayhew

University of Wisconsin - Madison - Department of Accounting and Information Systems

Date Written: September 15, 2004

Abstract

We describe related party (RP) transactions and investigate financial incentive and monitoring determinants for firms engaged in RP transactions. Our sample consists of 1,261 firms included in the S&P 1500. RP transactions are common in our sample, but vary substantially as to transaction type and disclosure. The most common RP transactions are loans, which are now largely prohibited by Section 402 of Sarbanes Oxley. Method of disclosure - financial statement footnote or proxy - appears largely driven by dollar-based materiality concerns. We also analyze two broad classes of determinants of RP transactions - financial incentives and monitoring. We find weaker corporate governance is associated with RP transactions, an inverse relationship between CEO and director's cash compensation and RP transactions, and a positive association between CEO stock options and RP transactions. However, director and officer ownership are not associated with RP transactions. Overall our results suggest associations between director and officer compensation, corporate governance and related party transactions.

Keywords: related party, disclosure, governance

JEL Classification: M41, M45, G34, G38, J33

Suggested Citation

Kohlbeck, Mark J. and Mayhew, Brian W., Related Party Transactions (September 15, 2004). AAA 2005 FARS Meeting Paper. Available at SSRN: https://ssrn.com/abstract=591285 or http://dx.doi.org/10.2139/ssrn.591285

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting ( email )

777 Glades Avenue
KH 119
Boca Raton, FL 33431-0991
United States
561-297-1363 (Phone)

Brian W. Mayhew (Contact Author)

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-2714 (Phone)
608-263-0477 (Fax)

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