| Related party transactions, a way of allocating resources for enterprise groups, can reduce transaction costs and risks, and enhance management efficiencies and firm value. However, controlling shareholders may take advantage of related party transactions to expropriate the firms' resources, thus related party transactions have a negative impact on firm value.Using a sample of Chinese listed firms from 2002 to 2005, we generally find that firm value is negatively associated with the number and amount of related party transactions; additionally, we find firm value is significantly negatively related to the number and amount of these six types of related party transactions, goods sales, goods purchases, asset restructuring, guarantees and mortgages, license treaty and the transactions counted as income. When engaging in related party transactions, the related parties may manipulate the unfair prices and terms in order to fulfill the interests of controlling shareholders. To regulate the unfair related party transactions,we put forward some suggestions on optimizing the ownership structure, perfecting the system of independent director and supervisory board, improving the information disclosure system, strengthening market supervision and so on. |
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