Market value and related party's transactions: a panel data approach

Najib H. S. Farhan and Faozi A. Almaqtari

Asian Journal of Accounting Research, 2023, vol. 8, issue 4, 411-424

Abstract: Purpose - This research aims to examine the impact of RPTs and board of directors' characteristics on the market value of Indian listed banks. Further, this study evaluates the moderation effect of board composition on the association between RPTs banks’ market value. Design/methodology/approach - The sample size consists of 38 banks listed on Bombay stock exchange. The current study is based on secondary data for ten years from 2010 to 2019. Generalized Method of Moment (GMM) was used for estimating the results. Findings - Subsidiary transactions, board of directors' size, composition, diligence, promoters, remuneration and banks' size and leverage have a significant impact on the market value of Indian listed banks. Further, board of directors' composition positively moderates the association between RPTs and banks value measured by Tobin's. Furthermore, corporate governance characteristics have a significant impact on RPTs measured by total RPTs and all subsidiary transactions. Research limitations/implications - This research is limited only to listed banks whose data are available in the ProwessIQ database, which makes it difficult to generalize the findings on other unlisted banks. This research helps policymakers, investors and creditors to categorize RPTs into different groups to identify the harmful and beneficial once to the bank. The findings suggest that policymakers, investors and creditors should not consider all key personal transactions as harmful transactions; instead, the policymakers, investors and creditors should consider all subsidiary transactions as harmful in the absence of independent directors. Originality/value - The present study contributes to the existing literature on RPTs by evaluating the interaction effect of board composition on the association between related party transactions and banks' value. Further, this research focuses on the financing industry; Indian banks, which has not been sufficiently researched in comparison to the non-financing industries.

Keywords: Market value; RPTs; Corporate governance; Indian listed banks (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajarpp:ajar-07-2022-0204

DOI: 10.1108/AJAR-07-2022-0204

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