An Empirical Study Of Corporate Governance And Related Party Transactions

With the development of studies on corporate governance, researchers find that the ownership structure of most modern firms is not as divided as Berle and Means’ prediction, but more concentrated. As the result, the agency problem between controlling shareholders and minority shareholders becomes more pressing. Many studies show that the controlling shareholders have the motivation and ability to transfer assets and profits from the public firms to themselves. The Chinese listed firms are always well-known for the high-concentrated ownership structure, and there are lots of evidences showing that the controlling shareholders take the related party transactions as the major form of tunneling. Although some findings show that controlling shareholders may choose to support when the firm is in trouble, but their basic purpose is tunneling in the future.Using the data of Chinese listed firms in machinery and device industry during2008-2010, we study the relationship between corporate governance and related party transactions after the non-tradable share reform, and we have these findings:(1) The degree of ownership structure, equity restriction, stated owned and the degree of marketization is significantly correlated with the scale of related party transactions. The scale of related party transactions of the firms with foreign shareholders is lower. The separation of chairman of board and CEO doesn’t lower the related party transactions.(2) The correlation between corporate governance and related party sales&purchases is not the same to the relationship between corporate governance and related party transactions. Without dividing the shareholders into different groups according to the concerted action people may incorrectly estimate the controlling shareholders’ power and the degree of equity restriction.(3) The proportion of shares held by the first shareholders’ group and the Herfindahl index keep declining during2008-2010. The proportion of blockholders’ shares declines too, and the ratio between them stays the same level. In some way, it means that the effect of non-tradable share reform on ownership structure is quite limited.