Does board demographic diversity constrain related party transactions? Evidence from India

Satya Prakash Mani and Shashank Bansal

Pacific-Basin Finance Journal, 2025, vol. 90, issue C

Abstract: This study examines the effects of board demographic diversity on expropriative and propping related party transactions (RPT) of Indian listed firms. We find a significantly negative relation between the board demographic diversity and expropriative RPT, indicating the monitoring role of board diversity in mitigating expropriative RPT. This effect is dominant among firms with weaker shareholder activism and lower institutional ownership, highlighting that board diversity mitigates expropriative RPT where there are higher agency problems. The effect is also prominent in the absence of family directors on the board and lower founder ownership, indicating that board diversity mitigates expropriative RPT when there is less influence of founders on the board. In contrast, we find a significantly negative relation between board diversity and propping RPT for firms with family directors on the board and higher founder ownership, indicating that board diversity mitigates propping RPT where there is higher founder influence in the firm. The effect is also prominent for firms with lower institutional investors and lower leverage, indicating that board diversity mitigates propping RPT when there are weak external governance mechanisms. Our finding has important implications for regulators.

Keywords: Related party transactions; Board diversity; Emerging markets; Tunneling; Expropriation; Propping (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:90:y:2025:i:c:s0927538x24004050

DOI: 10.1016/j.pacfin.2024.102653

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