The Study On The Relationship Of Related Party Transactions And Firm Value Of Listed Companies

As one of the most important and common economic activities in listed companies, related party transactions have deep influence to firm value. Not only can related party transactions take full advantage of the resources of group corporation, reduce transaction cost and increase firm value, but also can they be used to transmit resource and profit of companies, infringe interest of medium and small-sized shareholders and reduce firm value by non-fair related party transactions formed by unfair prices and rules. Related party transactions of Chinese listed companies tend to increase, while many of them are non-fair related party transactions, which have close contact with shareholding structure of listed companies in China. Most of Chinese listed companies are reformed from state-own firms. The special formation background makes the shareholding structure to be highly centralized and even have single-largest-shareholder. The self-interest goal of the majority shareholders makes the related party transactions usually a tool of infringing the benefits of minority shareholders. The reform of sub-owned shares brings a full circulation environment and gives new features to the shareholding structure. Therefore, the study on the relationship of shareholding structure, related party transactions and firm value has great importance nowadays.This dissertation focuses on the relationship of shareholding structure, related party transactions and firm vale of Chinese listed companies. Based on prior studies reviewed, this paper applies normative analysis method to study the motivation of related party transactions. It also applies both normative analysis method and empirical analysis method to study the relationship of shareholding structure, related party transactions and firm value by choosing the data of A-share listed companies in Shenzhen and Shanghai Stock Exchange from2008to2010as samples. After descriptive statistics analysis on the status of shareholding structure and related party transactions of Chinese listed companies, it analyzes the influence of ownership concentration and ownership restriction to firm value. Furthermore, this paper studies the influence of ownership restriction and the scale of related party transactions to firm value, and the relationship of non-fair related party transactions and firm value under different level of ownership restriction.The results indicate that there is a positive relationship between the amount and scale of related party transactions and ownership centralization, but a negative relationship between the amount and scale of related party transactions and ownership restriction in Chinese listed companies. In another word, different from ownership centralization which would increase the related party transactions, ownership restriction would be helpful to decrease the related party transactions, including non-fair related party transactions. The firm value of Chinese listed companies positively relates to ownership restriction, but negatively relates to the scale of related party transactions. To sum up, related party transactions reduce the firm value and ownership restrictions increase the firm value. But this is not true when the related party transaction is unfair. When the ownership restriction is high, non-fair related party transactions would reduce the firm value; on the opposite, when the ownership restriction is low, non-fair related party transactions would increase the firm value. This paper further reveals that the more restriction from majority shareholders to the controlling shareholder, the more non-fair related party transactions of decimate-interests to be used by controlling shareholder to transmit enterprise’s resource and invade minority shareholders’benefit to maximize the controlling shareholder’s benefit. Firm value reduces accordingly. When there is no majority shareholders restricting the controlling shareholder, more non-fair related party transactions of input-interests to be used to maximize the controlling shareholder’s benefit and firm value increases. Finally, the paper gives suggestions according to results as below:(1) Optimize the shareholding structure of Chinese listed companies, lower the ownership concentration moderately and improve the ownership restriction.(2) Standardize the related party transactions of Chinese listed companies, perfect the revealing system and strengthen the audit by Certified Public Accountant.(3) Increase the legal punishment to infringement of the interests of Chinese listed companies.