Related party transactions and separation between control and direction in business groups: the Italian case

Under IAS 24 a related party transaction (RPT) is a ‘transfer of resources, services or obligations between related parties, regardless of whether a price is charged’ (IASB 2009). In particular, it refers to those transactions that the firm engages with its subsidiaries, parent company, associates, managers, directors and majority shareholders, as well as their close relatives. The academic literature suggests at least three perspectives to interpret these transactions: (1) the conflict of interest perspective, considering the RPTs as potentially harmful for corporate outsiders (minority shareholders and creditors), (2) the efficient transactions perspective, for which RPTs may benefit the firm and its outsiders, (3) the contingencies perspective, arguing that it can not be said a priori that RPTs are harmful or efficient, as this would depend on the organizational context and institutional environment where such transactions are concluded. Following the contingency perspective and supported by the literature review, the article proposes to consider the interest of the business group and the directing activity of parent company for the interpretation of RPTs. Considering the interest of the group means interpreting intra-group transactions not as isolated transactions, as usually done by empirical studies, but in a wider perspective: that of the group. A multiple case study analyses on three Italian pyramidal groups will be presented in order to show how and why the interest of the group and the directing activity of parent company are important in the interpretation of RPTs