Discriminatory Related Party Transactions: A New Measure
28 Pages Posted: 20 Dec 2012 Last revised: 10 Sep 2023
Date Written: March 2017
Abstract
Discretionary related party transactions (also known as tunnelling or self-dealing transactions) are non-arms length transactions with related parties of controlling shareholders for private benefit at the cost of other shareholders. Though there are studies on discriminatory related party transactions, there has been limited effort to develop a measure for such discriminatory transactions. Current measures are based on weak theoretical underpinnings and prone to high measurement error. This paper develops and tests a new measure for these discriminatory transactions. Type 1, Type 2 error rates and power of the new measurement are compared with an existing measure using computer simulated and real data. The capital market sensitivity of the new measure is also tested and compared with an existing measure. The new measure is found to be superior. This is the first systematic effort to develop a measure for discriminatory related party transactions. It will contribute in policy-making in relation to discriminatory related party transactions.
Keywords: Related-party transactions, tunnelling, minority shareholders, discriminatory transactions
JEL Classification: M41
Suggested Citation: Suggested Citation
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