Title

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

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