Transactions between a firm and its own managers, directors, principal owners or affiliates are known as related party transactions. Such transactions, which are diverse and often complex, represent a corporate governance challenge. This paper initiates research in finance on related party transactions, which have implications for agency literature. We first explore two alternative perspectives of related party transactions: the view that such transactions are conflicts of interest which compromise management’s agency responsibility to shareholders as well as directors’ monitoring functions; and the view that such transactions are efficient transactions that fulfill rational economic demands of a firm such as the need for service providers with in-depth firm-specific knowledge. We describe related party transactions for a sample of 112 publicly-traded companies, including the types of transactions and parties involved. This paper provides a starting point in related party transactions research.
Gordon, E.A., Henry, E. and Palia, D. (2004), "RELATED PARTY TRANSACTIONS AND CORPORATE GOVERNANCE", Hirschey, M., and, K.J. and Makhija, A.K. (Ed.) Corporate Governance (Advances in Financial Economics, Vol. 9), Emerald Group Publishing Limited, Leeds, pp. 1-27. https://doi.org/10.1016/S1569-3732(04)09001-2
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