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Research regards related party transactions (RPTs) and control-ownership divergence (wedge) as expropriation mechanisms manifesting severe agency conflict in emerging markets. Since corporate governance greatly influences firms' investments and strategic behavior, this study examines how different RPTs and the wedge affect cross-border acquisition (CBA) size and returns. In line with agency theory, opportunistic RPTs like loans/guarantees reduce CBA returns. However, operating RPTs are positively related to returns as the market seems to link these RPTs with benefits to firms. The CBA performance of wedge firms varies with RPT types. While loans/guarantees by wedge firms reduce returns due to combined tunneling incentives, operating RPTs impact returns positively, reflecting more economic benefits in wedge firms. The wedge or RPTs are also positively related to CBA size. But increased tunneling incentives restrain wedge firms that give loans/guarantees from large CBAs. Finally, family firms or large group affiliates that provide loans/guarantees or sustain the wedge reduce returns yet make larger CBAs. Overall, agency costs of expropriation mechanisms depend on RPT types and receive further impetus in family firms or group affiliates with extensive intra-group linkages. [ABSTRACT FROM AUTHOR]

Abusive transactions with related parties are more common in a concentrated ownership structure. Previous studies have debated that the fallout of concentrated corporate ownership (i.e. sizable corporate conglomerates and corporate enterprises owned by business families or the government of the state) is high in a relatively close market. Despite the adoption of the Anglo–US model in BRICS (Brazil, Russia, India, China, and South Africa) for improving transparency, accountability, and fairness, the rate of corporate failure involving abusive related party transactions has been high. This study examines differences in related party transactions (RPT) regulatory strategies among BRICS with respect to international standards (Anglo–US model) and local conditions. The study analyses to what extent BRICS nations have adopted the Anglo–US model by comparing the RPT regulatory framework with the convergence towards the Anglo–US model, divergence from the Anglo–US model, and unfolding of a new construct in BRICS. Overall, the study finds Brazilian and Russian RPT legislation the least convergent towards the Anglo–US model and RPT legislation in India, China, and South Africa fully convergent towards the Anglo–US model. BRICS have shown persistence or resistance towards the Anglo–US RPT legal transplantation. In certain aspects, BRICS have made a concerted effort to regulate abusive RPTs suitable to their local conditions. However, RPT legislation in BRICS nations has failed to address some major governance problems caused by concentrated ownership structures (monitoring of RPTs in pyramidal companies, same RPT thresholds for group and non-group companies, dominance of controlling shareholders on independent directors' appraisal of RPTs, and the lack of adequate disclosure requirements for RPTs). [ABSTRACT FROM AUTHOR]

The paper sets out to examine the critical issue of whether the managers of listed companies in China engage in channel stuffing toward the end of accounting periods to avoid making a loss. It also seeks to determine the types of channel stuffing that listed companies in China engage in. The empirical results obtained in the study show that credit extension is the main method that is used for channel stuffing in order to avoid reporting a loss. The relationship between channel stuffing and related party transactions among listed companies in China is significantly negative and appears to be a substitutive one. Furthermore, when companies engage in channel stuffing, in the vast majority of cases the targets of this activity are not related parties, this characteristic is especially pronounced in the case of private-sector enterprises and enterprises that are not operating in highly regulated industries. [ABSTRACT FROM AUTHOR]

This study aims to investigate whether (a) corporate governance (CG) practice has a negative impact on size of Related Party Transactions (RPTs); (b) size of RPTs affects firm value; and (c) better corporate governance practice and higher disclosure on RPTs reduce the negative impact of size of RPTs on firm value. Our sample covers listed companies at the Indonesian Stock Exchange during 2005-2007. We document that better CG significantly reduces the size of RP liabilities and marginally lowers the size of RP assets. Consistent with these findings, we find that size of RPTs has a positive impact on firm value when the transaction involves loans/borrowings from related parties and that it has no impact on firm value when the transaction involves asset placements in related parties. Finally, we find that for companies with less than full disclosure of RPTs, size of RP assets has a negative effect on firm value. [ABSTRACT FROM AUTHOR]

The purpose of this study is to examine whether the level of Related Party Transaction (RPT) disclosure is influenced by corporate governance practice (CG), size of RPTs, firm size, auditor quality, and type of industry (that is regulated versus non-regulated), ownership concentration and financial leverage. We find that the extent of RPT disclosure is positively affected by CG practice and is marginally positively influenced by size of RPTs and firm size. These positive impacts primarily occur for relatively large firms. Further test reveals that CG practice, firm size, industry regulation, ownership concentration and financial leverage have significant effect on different components of RPT disclosure. [ABSTRACT FROM AUTHOR]

Related party transactions (RPTs) are potentially either efficient arrangements or tools for self-dealing. Unlike previous empirical studies using data from the United States or developing countries, this article focuses on RPTs in Italy. First, the article compares Italian RPT regulation and disclosure requirements with those of two major Continental European countries (France and Germany). This comparison highlights the burdensome character of the Italian discipline compared with the French and German regulations. Second, it presents data on RPTs disclosed by Italian listed companies. The data indicate that ordinary intra-group commercial and borrowing activities are the most common types of RPTs. Third, the article examines the relationship between RPTs and financial/governance variables used as proxies for costs of, and incentives for, tunnelling. Only a weak association emerges between those variables and RPTs, providing very limited indication of potentially opportunistic behaviour. [ABSTRACT FROM AUTHOR]

The paper makes a case for corporate governance as an internal mechanism in banks, and therefore influenced by cultural issues, to dovetail with the overriding compulsions of prudential regulation, that sets the boundaries for systemic stability. The dynamic changes in the structure of global financial markets and the blurring of boundaries between different players — banks, investment banks and hedge funds, pose new challenges for financial regulators. This is especially crucial in the context of structural mechanisms that are in place to run the new financial conglomerates. From a regulatory perspective, the key issue would be the presence of unregulated entities/holding companies in the structure. The presence of any unregulated entity within the Bank Holding Company/Financial Holding Company structure, especially an unregulated intermediate holding company, may prove to be a weak link in the entire structure, providing scope for regulatory arbitrage. As is evident from the recent sub-prime problems originating in the United States, all financial entities are interdependent and the collapse of any one, not necessarily a commercial bank, involves a systemic risk and may propel the financial regulator to save it. In the context of overriding compulsions of financial stability and the inherent limitations of any external regulation to anticipate all innovative, exotic derivative products and eliminate the propensity of excessive risk-taking by a bank/financial entity, regulators worldwide, and in India, are placing more and more responsibility on bank boards. This has entailed, on the part of the board, a better quantitative understanding of the risks inherent in specific lines of activity and a clear assessment of possible impact on the financials. In the Indian context, the Reserve Bank of India (RBI) has put in place detailed regulations related to the composition of bank boards, the ‘fit and proper’ criteria for appointment of directors, transparency and disclosure norms for derivative products, related-party transactions, risk-based internal audit and other crucial components of banks' corporate governance architecture. The systemic risk posed by such financial conglomerates (FC), because of possible regulatory arbitrage, is sought to be plugged by a system for all the identified FC whereby a designated entity within the conglomerate reports to its lead regulator. In order to monitor the intra-group transactions and exposures, information from the designated entities of each FC is obtained by the principal regulators and a system for exchange of information among the regulators has been put in place. Mixed ownership of government (as a majority shareholder) and private (almost all public sector banks are listed on the stock exchange) also poses a unique challenge of divergent objectives of shareholding and the issues of reconciling them. In the final analysis, corporate governance is a continuous process of evolving best practices in response to market developments. RBI cannot be complacent. This is the constant thrust of RBI's initiatives in ensuring a vibrant corporate governance framework.International Journal of Disclosure and Governance (2008) 5, 186–204. doi:10.1057/jdg.2008.8 [ABSTRACT FROM AUTHOR]