The Breadth and Depth of Related Party Transactions Disclosures

Abstract

Abstract-This paper reviews the existing requirement on related party transactions (RPTs) disclosure in the Malaysian context and discusses issues surrounding such disclosure. As there are two conflicting effects of RPTs, sufficient information should be made available to assist investors in analyzing the risk and return of RPTs. We review prior studies and highlight issues of information disclosure related to RPTs, such as the variations in the level of RPTs disclosure. We propose future research on RPTs to apply content analysis using a voluntary disclosure index to understand more about the breadth and depth of the RPTs information.

Controlling Shareholders’ Networks and Related Party Transactions: Moderating Role of Director Remuneration in Malaysia

“…Past studies in Malaysia show that RPTs have frequently been used to increase private wealth, specifically among family business entities (Ariff & Hashim 2013;Munir et al 2013;Wahab et al 2011). In addition, RPTs can also be used to manipulate a company's earnings (Gordon et al 2007), and perpetuate fraud (Beasley et al 2000).…”

“…The weak implementation of corporate governance practice and poor enforcement of minority shareholders' protection create a conducive landscape for controlling shareholders to enter into a contract with related parties (Rahmat & Ali 2016;Wahab et al 2011). As a result, RPTs in Malaysia have frequently been used to increase private wealth rather than to increase a company's efficiency, specifically among family businesses (Ariff & Hashim 2013).…”

Controlling Shareholders’ Proxy and Multiple Directorships: Insight Evidence from Related Party Transactions

“…Prior evidence showed that controlling shareholders are associated with opportunistic activity to expropriate the wealth of minority shareholders, specifically through related party transactions (RPTs) (Abdul Wahab, Haron, Char, & Yahya 2011;Ariff & Hashim 2013;Dahya, Dimitrov, & McConnell 2008;Munir, Mohd-Saleh, Jaffar, & Yatim 2013). RPTs are performed to enhance a company's daily business operation efficiency (Cheung, Rau, & Stouraitis, 2006;Dahya et al 2008).…”

“…RPTs are performed to enhance a company's daily business operation efficiency (Cheung, Rau, & Stouraitis, 2006;Dahya et al 2008). However, the use of RPTs as tools to maximize controlling shareholders' personal benefits is more prominent (Ariff & Hashim 2013;Cheung et al 2006;Johnson, Boone, Breach, & Friedman 2000;Kohlbeck & Mayhew 2010), particularly among family controlled firms (Villalonga & Amit 2006). The ability of controlling shareholders to abuse RPTs is based on theoretical assumption that they benefit from the advantages of concentrated ownership to exercise control through their dominant voting rights (Claessens, Djankov, & Lang 2000).…”

“…Otherwise, the controlling shareholders may expropriate RPTs for their own wealth; but legitimate the transaction as if it is required and needed for business purposes. Past evidence indicated that RPTs engaged by Malaysian listed firms were frequently used to increase private wealth, specifically among family's business entities, although the transaction is soundly needed to increase firm's efficiency (Abdul Wahab et al 2011;Ariff & Hashim 2013). The above circumstances are a result from the collusive Malaysia business environment; that is, concentrated ownership among families and facilitated by poor legal protection and governance enforcement (Claessens et al 2000;Munir et al 2013).…”