Related Party Transactions: Legal Strategies and Associations with Corporate Governance and Firm Value in Brazil

73 Pages Posted: 29 Nov 2008

See all articles by Alexandre Di Miceli da Silveira

Alexandre Di Miceli da Silveira

Alvares Penteado School of Business (Fecap)

Viviane Muller Prado

São Paulo Law School of Fundação Getulio Vargas FGV DIREITO SP

Rafael de Campos Sasso

FEA-USP

Date Written: November 26, 2008

Abstract

Related Party Transactions (RPTs) are operations with high potential for conflict of interests between shareholders and managers or between controlling and minority shareholders. In environments characterized by concentrated ownership structures, such as in Brazilian, such transactions could be used as a way for reaping private benefits of control by controlling shareholders. This paper undertakes this issue from both legal and empirical point of view. On the legal side, we survey the legal strategies currently employed in Brazil by regulators and self-regulatory bodies aiming at to avoid the problems from the inherently conflict of interests present in such dealings. On the empirical side, we analyze the RPTs reported by all Brazilian companies listed at Bovespa's corporate governance special listing segments in 2006. We also analyze the relation between the use of RPTs and proxies for corporate governance quality, as well as the relation between RPTs and firm market value. As the main qualitative result from our legal survey, we observe that Brazilian legal system makes use of two main legal strategies: definition of expected standards with ex-post analysis, and mandatory disclosure of relevant RPTs. From our quantitative analyses, three results stand out: RPTs are significant and frequent among Brazilian listed companies, there's a negative association between the use of RPTs and corporate governance quality, and there's a negative association between RPTs and firm market value. Overall, the empirical results provide evidence that RPTs are a signal for conflicts of interests taking place, rather than efficient business transactions.

Note: Downloadable document is in Portuguese.

Keywords: Related Party Transactions, Corporate Governance, Agency Costs, Conflicts of Interests, Legal Strategies

JEL Classification: K22, K33, G30, G32

Suggested Citation

Di Miceli da Silveira, Alexandre and Prado, Viviane Muller and Sasso, Rafael de Campos, Related Party Transactions: Legal Strategies and Associations with Corporate Governance and Firm Value in Brazil (November 26, 2008). Available at SSRN: https://ssrn.com/abstract=1307738 or http://dx.doi.org/10.2139/ssrn.1307738

Alexandre Di Miceli da Silveira (Contact Author)

Alvares Penteado School of Business (Fecap) ( email )

Av. Liberdade, 532
Liberdade
São Paulo
Brazil
+5511945909031 (Phone)

HOME PAGE: http://lattes.cnpq.br/4773608871754250

Viviane Muller Prado

São Paulo Law School of Fundação Getulio Vargas FGV DIREITO SP ( email )

R. Rocha, 233, Bela Vista
São Paulo, 01330-000
Brazil
00 55 11 3281-3421 (Phone)

Rafael de Campos Sasso

FEA-USP ( email )

Av. Prof. Luciano Gualberto 908
São Paulo SP, São Paulo 05508-900
Brazil
11-7017-8645 (Phone)

HOME PAGE: http://ww.fea.usp.br

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
998
Abstract Views
4,209
Rank
42,115
PlumX Metrics