Are related-party sales value-adding or value-destroying? Evidence from China
Document Type
Journal article
Source Publication
Journal of International Financial Management & Accounting
Publication Date
2-1-2015
Volume
26
Issue
1
First Page
1
Last Page
38
Abstract
Prior literature provides mixed and relatively little evidence on the economic consequences of related-party transactions. We examine a hitherto underexplored issue of whether transactions among firms within the same business group increase or reduce firm value. Using a large sample of Chinese listed firms, we find that related-party sales increase firm value. However, this value enhancement disappears for firms with (i) large percentage of parent directors, (ii) high government ownership, or (iii) tax avoidance incentives that often couple with management's rent extraction activities. Although we find that intragroup sales improve firm value in general, we also find that corporate insiders use intragroup sales to deprive value from minority shareholders. Overall, our findings highlight the interplay between ownership structure and tax avoidance incentives in determining the economic consequences of related-party transactions.
DOI
10.1111/jifm.12023
Print ISSN
09541314
E-ISSN
1467646X
Publisher Statement
Copyright © 2015 John Wiley & Sons Ltd
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Wong, R. M. K., Kim, J.-B., & Lo, A. W. Y. (2015). Are related-party sales value-adding or value-destroying? Evidence from China. Journal of International Financial Management & Accounting, 26(1), 1-38. doi: 10.1111/jifm.12023