IFRS related party transactions disclosure and firm valuation in the United Arab Emirates emerging market

Abstract

Purpose The purpose of this paper is to investigate the relationship between related party transactions disclosure (RPTD) and firm valuation in the United Arab Emirates (UAE), an emerging market. Design/methodology/approach Data on study variables were obtained manually from the published financial statements of all listed companies in the stock market during the period 2008-2012. Panel regression analysis models with fixed and random effects were used to ensure reliability of results. Several robustness checks were undertaken on the study outcomes. Findings The empirical results show that there is a significant negative relationship between RPTD and firm valuation in the UAE. RPTDs for subsidiaries and associates have the most damaging impact on firm valuation. Other control variables such as corporate governance disclosure (CGD), debt to equity, asset tangibility and sales growth show significant impact on firm valuation. Research limitations/implications The potential difference in the understanding of what constitutes “related party” across companies may affect the extent of related party disclosure across companies. Furthermore, some variables are not controlled for such as ownership structure and cultural values. Practical implications This paper provides useful practical guidelines for regulatory agencies, corporate managers and other stakeholders for improving the financial reporting system. Originality/value RPTD was measured according to the International Financial Reporting Standards (IAS 24) standards. Furthermore, the impact of new control variables such as CGD and product market competition was tested for financial and non-financial sectors.

Tax Avoidance, Related Party Transactions, Corporate Governance and the Corporate Cash Dividend Policy

“…Most previous studies focused on investigating the effects of CG's moderation on RPT relationships with market reactions (Cheung et al (2006); Utama et al (2010); Ryngaert and Thomas (2012)) or company values (Kohlbeck and Mayhew (2010); Utama & Utama (2014); Elkelish (2017)). Koestaman and Diyanti (2013) have tested the effect of CG's moderation, but on the relationship between family ownership and cash dividend payouts.…”

Controlling shareholders, audit committee characteristics, and related party transaction disclosure: Evidence from Indonesia

“…This finding is in accordance with the opinion of Faccio & Lang (2002) transfer company resources that harm minority shareholders. Tunneling is one of the transactions carried out by controlling shareholders to divert company resources for their personal benefit (Elkelish, 2017). The controlling shareholders usually conduct transactions with related parties to maintain their wealth (Setiawan et al, 2016).…”

“…Some previous studies suggest that companies that disclose related party transactions have lower stock prices (Ge et al, 2010;Kohlbeck & Mayhew, 2010;Elkelish, 2017). This is because investors tend to be skeptical of related party transactions (Carlo, 2014).…”

“…Meanwhile, the related party transactions disclosure level in South Africa is 77 percent (Sellami & Fendri, 2017). While Elkelish (2017) finds that the level of related party transactions disclosure in the United Arab Emirates is 12 percent, based on the evidence above, it can be concluded that there are no studies that uncover the level of related party transactions disclosure reaching the percentage of 100 percent; whereas the disclosure of related party, the transaction is a mandatory process in which the level of disclosure must be 100 percent. Thus, there are still problems in related party transactions disclosure.…”

Promoter Ownership, Related Party Transactions and Firm Performance: A Study Among Selected Companies in India

“…RPTs can have dual effect; on the one hand, RPTs are considered as efficient business transactions because it facilitate the allocation of resources between the affiliates in a less transaction cost and create market for the product and services of affiliates within corporate group (El-Helaly, 2016). On the other hand, RPTs are considered as a tool to divert firm’s resources for the private interest of the insiders (Chen, Cheng, & Xiao, 2011; Cheung et al, 2009; Elkelish, 2017; Gordon, Henry, & Palia, 2004).…”