The Empirical Research On Choosing The Pricing Method Of Related Party Transactions

With the developing of world economic and capital market, there are more and more Related Party Transactions in listed companies. The core problem of the Related Party Transactions is the pricing problem, because the prices of these transactions are not very fair. Scholars both home and aboard have conducted many researches in terms of Related Party Transactions, but they always pay attention to the total amount of the transactions, very few scholar pay attention to the pricing method. Now this paper we discuss the two important and representative pricing methods in Related Party Transactions—Market Pricing Method and Agreement Pricing Method.This paper had two research topics. The first one was discussing the relationship between earnings management and the pricing methods. The second one was discussing the relationship between the pricing methods and corporate governance.We selected all the A-share listed companies with pricing method disclosure in financial reports from 2007 to 2009. We analyzed data using a lot of models, including Jones Model, Multiple Linear Regression Model, Logistic Multiple Regression Model and so on. And finally we had conclusions according to the empirical results.The main conclusions in this paper were:(1) the level of earnings management is high when using Agreement Pricing Method, and the level of earnings management is low when using Market Pricing Method. (2) Corporate governance will have effect on selecting pricing method. When the shareholding ratio of control shareholder is low, the company prefers using Agreement Pricing Method with the increasing of shareholding ratio of control shareholder; on the other hand, when the shareholding ratio of control shareholder is high, this time the benefit of the company and the benefit of the control shareholder become the same, so the company prefers using Market Pricing Method instead. And with the increasing of shareholding ratio of another shareholders and Institutionsal holdings, the company prefer using Market Pricing Method. And we also found that the independent director and the supervisor board have little impact on selecting pricing method.This paper found that the Related Party Transactions using Agreement Pricing Method is much more unfair. And the government should pay more attention to this kind of Related Party Transactions.