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http://dx.doi.org/10.5762/KAIS.2018.19.9.446

Related Party Transactions and Corporate Value: Test of the Efficient Transaction and Conflict of Interests Hypothesis  

Lee, Sang-Gyu (Department of Business Administration, Changwon National University)
Kim, Byoung-Gon (Department of Business Administration, Changwon National University)
Kim, Dong-Wook (Busan Economic Promotion Agency)
Publication Information
Journal of the Korea Academia-Industrial cooperation Society / v.19, no.9, 2018 , pp. 446-453 More about this Journal
Abstract
This study analyzed the effect of related party transactions on the corporate value of Korean firms using panel data regression analysis. We tested the efficient transaction hypothesis and conflict of interests hypothesis which concern related party transactions. Five types of related party transactions were considered, including long term supply contracts, assets and business transfers, affiliate loans, equity investment, and credit offerings. If related party transactions were conducted for the purpose of enhancing corporate efficiency, results would have a positive effect on firm value. If related party transactions were conducted for the purpose of private profits of the controlling shareholders, the results would show a negative effect on firm value. Results were as follows. Firstly, it is confirmed that affiliate loans, equity investment, and credit offerings had negative effects on firm value. This implies that these types of related party transactions used by controlling shareholders for the purpose of their private profit, which supports the conflict of interests hypothesis. Secondly, it was found that long term supply contracts and assets and business transfers had no effect on firm value.
Keywords
Related Party Transactions; Tunneling; Firm Value; Efficient Transaction Hypothesis; Conflict of Interests Hypothesis;
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