Do firms benefit from related party transactions with foreign affiliates? Evidence from Korea

Sung C. Bae and Taek Ho Kwon

International Review of Finance, 2021, vol. 21, issue 3, 945-965

Abstract: We extend the existing literature on related party transactions (RPTs) from a domestic to an international dimension and uncover new evidence of resource transfer by foreign direct investment (FDI) firms to their foreign affiliates through overseas RPTs. Employing uniquely‐constructed RPT data of Korean firms during 2005–2010, we find significantly negative effects of such transactions on the values of parent firms, which are further confirmed from two‐stage least square regressions after correcting for the endogeneity issue. Further analyses reveal that negative valuation effects are most pronounced for overseas RPTs of FDI firms which are in the high‐tech industry and whose foreign affiliates are in emerging countries. These results indicate that high‐tech FDI firms use RPTs as a means of transferring resources to support their poorly‐performing foreign affiliates in emerging countries, especially surrounding the global financial crisis. We find little evidence that FDI firms use RPTs to withdraw or tunnel investment returns of foreign affiliates back to the home country for the benefits of investing firms during our sample period.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/irfi.12308

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:irvfin:v:21:y:2021:i:3:p:945-965

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1369-412X

Access Statistics for this article

International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

More articles in International Review of Finance from International Review of Finance Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().