Related party transactions : a research on listed companies on Singapore Exchange (SGX)

The complicated nature of transactions between a public listed company and its related parties has been found to play an important role in the firm’s performance. Some recent evidence about RPTs being used to manage earnings and to transfer profits out of the firms, or to expropriate minority shareholders has been found in China and Hong Kong. Based on a sample of 571 companies listed on the Singapore Exchange during the period between 2003 and 2007, this paper attempts to describe the pattern of RPT practice in Singapore, as well as RPT’s determinants and their effects on firm valuation. Firstly, we find that the most prevalent types of RPTs reported in the firm’s annual reports are sales or purchases of goods and services, compensation for key management executives, management fees expenses, lease incomes and expenses. Secondly, our regression models show that the extent of RPTs conducted in some types is positively associated with the concentration of ownership, CEO Duality and Big 4 auditor while negatively associated with the independence of the audit committee chairman and the firm’s size. Finally, our findings also suggest that only certain types of related party transactions are associated with negative market reaction before and after the RPT announcements.BUSINES