Related Party Transactions: Their Origins and Wealth Effects

50 Pages Posted: 17 Mar 2007

See all articles by Michael D. Ryngaert

Michael D. Ryngaert

University of Florida - Department of Finance, Insurance and Real Estate

Shawn Thomas

University of Pittsburgh - Katz Graduate School of Business

Date Written: September 20, 2007

Abstract

Related party transactions are potential mechanisms for insiders to expropriate outside shareholders via self-dealing; however, there are also possible benefits to these arrangements for outside shareholders. This paper investigates the frequency, nature, and valuation consequences of related party transactions for a sample of firms in four industries. The evidence suggests that, on average, related party transactions are not harmful to outside shareholders. However, the average results obscure the fact that while transactions that pre-date a counterparty becoming a related party appear to be innocuous at worst, transactions initiated after a counterparty becomes a related party are associated with reduced shareholder wealth. We also find evidence that firms in which key executive positions are handed down to family members have lower valuations.

Keywords: Related Party Transaction, Ownership Structure, Tunneling, Corporate Governance

JEL Classification: G32

Suggested Citation

Ryngaert, Michael David and Thomas, Shawn, Related Party Transactions: Their Origins and Wealth Effects (September 20, 2007). Available at SSRN: https://ssrn.com/abstract=970689 or http://dx.doi.org/10.2139/ssrn.970689

Michael David Ryngaert

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9765 (Phone)

Shawn Thomas (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

246 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-1648 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~shthomas/index.htm

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