Does Corporate Governance Matter? Evidence from Related Party Transactions in Malaysia

Abstract

This chapter investigates the relationship between related party transactions (RPTs), corporate governance, and firm performance. Specifically, this chapters examines the moderating effect of corporate governance on the RPTs–performance relationship. On the basis of 448 firm-year sample for 2005–2007, we find evidence that related transactions are detrimental to shareholders and thus reducing firm performance. However, the negative effect is mitigated with the presence of good governance, namely level of board independence and executive remuneration. Furthermore, we find auditor size as an external governance mechanism could also reduce the negative impact of RPTs.

Citation

Aswadi Abdul Wahab, E., Haron, H., Lee Lok, C. and Yahya, S. (2011), "Does Corporate Governance Matter? Evidence from Related Party Transactions in Malaysia", John, K. and Makhija, A.K. (Ed.) International Corporate Governance (Advances in Financial Economics, Vol. 14), Emerald Group Publishing Limited, Leeds, pp. 131-164. https://doi.org/10.1108/S1569-3732(2011)0000014009