— Business groups are ubiquitous and play an important role in Taiwanese fiscal revenue and economic development. Related party transactions are an arm's length transaction could lead to negative effects to group affiliated firms’ value and performance. Drawing on the institution-driven intentions of shell resource maintenance and refinancing qualification, our paper aims to examine the relationship between related party transactions and corporate value for the firms listed on the Taiwan Stock Exchange and in the GreTai Securities Market in Taiwan. The empirical results reveal that both of the related party sales and purchases increase the value of the affiliated firms. The institutional perspective is supported and the business group-affiliated firms seem to be propped up. However, when the related party sales of the affiliated firms are bigger than their related party purchases, the firm value of the affiliated firms is more likely to be lower than those of nonaffiliated firms and demonstrates the tunneling motivation of related party transactions.
— Related party transactions, corporate value, business group, institutional perspective.
Ching-Chieh Tsai and Yuang-Lin Chang are with the Accounting Information Department, National Taichung University of Science and Technology, Taichung, Taiwan (e-mail: tcc57@ nutc.edu.tw, ylchang@ nutc.edu.tw).
Ling-E Chang is with the Information Management Department, National Taichung University of Science and Technology, Taichung, Taiwan (e-mail: linge@ nutc.edu.tw).
Cite: Ching-Chieh Tsai, Ling-E. Chang, and Yuang-Lin Chang, " Related Party Transactions and Corporate Value," Journal of Economics, Business and Management vol. 3, no. 10, pp. 924-928, 2015.