Does common institutional ownership constrain related party transactions? Evidence from China

Han Zhang, Minghui Li and Yujie Yang

International Review of Economics & Finance, 2024, vol. 93, issue PB, 1015-1042

Abstract: This study investigates the influence of common institutional ownership (CIO) on the use of related party transactions (RPTs) using a sample of 4410 Chinese A-share listed firms from 2000 to 2021. We find that CIO constrains the use of RPTs. Mechanism tests reveal that the negative association is more prominent for firms with poorer information environments or more concentrated ownership by large shareholders, which is consistent with CIO’s monitoring expertise mechanism. Moreover, the tests indicate that the negative association is more prominent when common institutional investors hold more same-industry or geographically proximate firms, which is consistent with CIO’s scale economy mechanism. Furthermore, heterogeneity analysis suggests that the negative effect of CIO on RPTs is moderated by common institutional investors’ independence, horizon, and stability, as well as by RPTs’ type, abnormality, and direction. Finally, we demonstrate that firms with CIO exhibit higher firm value. Overall, our findings provide a bright side for the ongoing debate regarding the role of CIO and have important implications for regulators and investors in emerging markets.

Keywords: Common institutional ownership; Related party transaction; Agency problem; Corporate governance; China (search for similar items in EconPapers)
JEL-codes: G11 G23 G34 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:93:y:2024:i:pb:p:1015-1042

DOI: 10.1016/j.iref.2024.05.039

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