Director compensation and related party transactions

Review of Accounting Studies - This paper examines whether independent directors’ compensation is associated with related party transactions. We focus both on directors’ total...     

Value relevance of disclosed related party transactions

Several recent North American corporate scandals have brought attention to the potential for accounting manipulations associated with related party transactions (RPTs), which have lead to a decline in perceived earnings quality. We examine the value relevance of disclosed RPTs in Chinese corporations. We focus on two types of RPTs: sales of goods and sales of assets. From 1997 to 2000, we find that the reported earnings of firms selling goods or assets to related parties exhibit a lower valuation coefficient than those of firms in China without such transactions. This result is not observed during 2001-2003 after a new fair value measurement rule for RPTs came into effect. Our evidence suggests that the new RPT regulation in China is perceived to be effective at reducing the potential misuse of RPTs for earnings management purposes. Since RPTs have been the subject of numerous scandals in North America, our evidence from the Chinese stock markets suggests that new RPT accounting standards could prove an efficient solution to this issue.     

Valuation of firms that disclose related party transactions

We examine the stock market’s valuation of firms that disclose related party (RP) transactions compared to those that do not. We examine market values just prior to the Sarbanes-Oxley Act (SOX) ban on RP loans to evaluate the market’s perception of firms with RP transactions prior to regulatory intervention. We also evaluate subsequent returns to assess the RP firms’ overall risk return profile. We use the 2001 S&P 1500 to provide a large yet manageable hand-collected sample that predates SOX. Our market analysis suggests that RP firms have significantly lower valuations and marginally lower subsequent returns than non-RP firms. Market perceptions differ based on partitioning firms by RP transaction type and parties. The results are consistent with the market discounting firms that engage in simple RP transactions.     

Product market competition,ultimate controlling structure and related party transactions

Previous studies have shown that product market competition has an important effect on corporate strategies and internal governance mechanisms. Using a sample of China’s listed firms from 2004 to 2009, we explore the relationship between product market competition and normal related party transactions and find a significant positive relationship. In addition, we investigate the substitutive effect of product market competition and the cash flow rights owned by ultimate controlling shareholders on the extent of normal related party transactions. In particular, our results suggest a positive relationship between the ultimate controlling shareholders’ cash flow rights and normal related party transactions that is strongest in noncompetitive industries and weakens as product market competition increases.     

Tunneling and propping up: An analysis of related party transactions by Chinese listed companies

We examine a sample of related party transactions between Chinese publicly listed firms and their controlling shareholders during 2001–2002. Minority shareholders in these firms seem to be subject to expropriation through tunneling but also gain from propping up. On balance, there seems to be more tunneling than propping up. Both types of firms have larger state ownership compared to the rest of the Chinese market but firms that are propped up are larger and have larger state ownership than firms subject to tunneling. Propped up firms are more likely to have foreign shareholders and to be cross-listed abroad compared to firms that are subject to tunneling. Propped up firms also tend to have worse operating performance in the fiscal year preceding the announcement of the related party transaction. Finally, we find that related party transactions representing tunneling are accompanied by significantly less information disclosure compared to related party transactions representing propping.     

Buy high,sell low: How listed firms price asset transfers in related party transactions

We examine a sample of 254 related party and arms’ length acquisitions and sales of assets in Hong Kong during 1998–2000. Our analysis shows that publicly listed firms enter deals with related parties at unfavourable prices compared to similar arms’ length deals. Firms acquire assets from related parties by paying a higher price compared to similar arms’ length deals. In contrast, when they sell assets to related parties, they receive a lower price than in similar arms’ length deals. With the exception of audit committees, corporate governance characteristics have limited impact on transaction prices. Firms with audit committees on their boards pay lower prices to related parties for acquisitions and receive higher prices from related parties from divestments.     

Brand royalty flows within large business groups: The effect of holding company structure and related party transactions committees

This study investigates the intragroup flows of brand royalties within large Korean business groups, known as chaebols. We find that member firms pay a greater amount of brand royalties when the business groups they are part of adopt a holding company governance structure, consistent with the bitter denunciation that chaebols transfer wealth from member firms to holding companies over which they have direct control. However, member firms pay a smaller amount of brand royalties when their related-party transactions (RPTs) are monitored by a designated RPT committee on the board of directors. The results show that monitoring RPTs is effective in mitigating the alleged unethical wealth transfer through excessive brand royalties within large business groups. Our study adds to the literature on RPTs by shedding new light on brand royalty, specifically by illustrating how intragroup brand royalties are determined and charged to member firms, and by introducing the RPT committees as a new internal governance mechanism to discourage abusive RPTs.     

Tunneling,propping, and expropriation: evidence from connected party transactions in Hong Kong

We examine a sample of connected transactions between Hong Kong listed companies and their controlling shareholders. We address three questions: What types of connected transactions lead to expropriation of minority shareholders? Which firms are more likely to expropriate? Does the market anticipate the expropriation by firms? On average, firms announcing connected transactions earn significant negative excess returns, significantly lower than firms announcing similar arm's length transactions. We find limited evidence that firms undertaking connected transactions trade at discounted valuations prior to the expropriation, suggesting that investors cannot predict expropriation and revalue firms only when expropriation does occur.     

Related party transactions and firm value: The moderating role of corporate social responsibility reporting

This study investigates the influence of related party transactions (RPTs) on firm value. Further, it examines whether a firm’s corporate social responsibility (CSR) reporting reflects its corporate values and ethical concerns, therefore mitigating the value-destroying effects of RPTs. Based on 274 observations from publicly listed firms in Indonesia, our results show that RPTs (i.e., related party sales) are negatively related to firm value. Further, we find that in the presence of better CSR reporting, the relationship between RPTs and firm value becomes more positive. This is in line with the view that CSR reporting, which reflects firms’ ethical concerns, may serve as a mechanism against managers’ opportunism. However, we find that related party payables have a positive relationship with firm value. Further investigation reveals that, although certain RPTs show a short-term, value-enhancing effect, these transactions seem to result in subsequent tunneling activities, suggesting managerial opportunism in the long term.     

关联方交易及其审计要点探讨

由于关联方交易是注册会计师审计工作中的难点问题,本文拟通过对关联方交易审计中所需要掌握的概念、法规及其涉及会计处理和定价政策等方面的归纳和分析,帮助注册会计师在审计中了解和应对关联方交易审计风险.     

Density estimation through quasi-analytic Monte-Carlo simulation: Options arbitrage with transactions costs

Discretely rebalanced options arbitrage strategies in the presence of transaction costs have path dependent returns that are difficult to model analytically. I instead use a quasi-analytic procedure that combines the computational efficiency of analytical solutions with the flexibility of simulations. The central feature is the estimation of the distribution of returns of the arbitrage strategy by mapping simulated returns percentiles and the input parameter set. Using the estimated density, I evaluate the tradeoff between transaction costs and risk exposure under generalized transaction costs structures that includes bid-ask spread and brokerage commission. I show that the optimal strategy depends on transaction costs, volatility, and option moneyness. Strategies such as rebalancing when the hedge ratio changes by 0.25, balances transaction costs and risk exposure, and can be optimal.

Propping and tunneling: Empirical evidence from Japanese keiretsu

We examine the response of horizontal and vertical keiretsu to the changing economic and regulatory climate in Japan from 1987 to 2001. We find evidence of profit tunneling of more weakly affiliated keiretsu firms during strong economic times. We observe propping of weakly aligned firms during recession. Many horizontal keiretsu firms strengthened their degree of adhesion to the horizontal keiretsu in response to increasingly tightened credit conditions post-1991. The motivation behind strengthened affiliation appears primarily linked to the goal of overcoming financial constraints by accessing the internal capital market of the business group.     

Realized volatility and transactions

This paper re-examines the impact of number of trades, trade size and order imbalance on daily stock returns volatility. In contrast to prior studies, we estimate daily volatility using realized volatility obtained by summing up intraday squared returns. Consistent with the theory of quadratic variation, realized volatility estimates are shown to be less noisy than standard volatility measures such as absolute returns used in previous studies. In general, our results confirm [Jones, C.M., Kaul, G., Lipson, M.L., 1994. Transactions, volume, and volatility. Review of Financial Studies 7, 631–651] that number of trades is the dominant factor behind the volume–volatility relation. Neither trade size nor order imbalance adds significantly more explanatory power to realized volatility beyond number of trades. This finding is robust to different time periods, firm sizes and regression specifications. The implications of our results for microstructure theory are discussed.     

外部环境、内部制度与控股股东支持行为

控股股东支持是与掏空相反的一种利益输送行为,表现为控股股东用私人资源或其控制的资源支持处于困境中的上市公司。基于对近期文献的回顾与梳理,从外部环境、内部制度与支持方式三个角度研究控股股东支持行为。发现控股股东通常是在弱法律保护环境与中度经济冲击的背景下利用企业集团内部资本市场对其控制的上市公司进行包括负债、关联交易等在内的各种方式的利益输送。     

Accounting for complex investment transactions

This case study exposes students to complex investment transactions. You must document the following: (1) apply the appropriate accounting literature along with its provisions and justify the order of its application; (2) identify and interpret key facts to classify the given investments and relations; (3) discuss the choice of key assumptions that are central to the analysis; (4) interpret the nature of all investment relations with Holdings; discuss all Owner level and below relations; (5) discuss how accounting for varied levels of influence impact the items reported on/off the face of investors' financial statements; (6) from DT's perspective, discuss the potential positives and negatives of its arrangement with Owner with respect to Holdings; and (7) after analyzing additional facts, discuss the nature of the relations of Simon and Herb III with Owner.     

Convertible securities in merger transactions

This paper provides a rationale for the use of convertible securities as the medium of exchange in corporate change-of-control transactions. We argue that convertible securities can resolve the information asymmetry about the bidder’s value while at the same time mitigating the information asymmetry about the target’s value. In contrast, deals with cash or stock can only address one information asymmetry or the other but not both. Empirically, we find that a bidder is more likely to offer convertible securities, rather than all cash or all stock, when both the bidder and its target face large asymmetric information problems. We also find that both bidders and targets in convertible deals enjoy positive abnormal stock returns around takeover announcements. These findings provide empirical support for the use of convertible securities to resolve the double-sided asymmetric information problem. Finally, we find that bidder returns in convertible deals are larger than in all-cash and all-stock deals, but that target returns in convertible deals are smaller than in all-cash and all-stock deals.     

控制权转移和资产重组：掏空抑或支持——来自中国资本市场的经验证据

本文通过对控制权转移以后上市公司资产重组行为的研究,揭示了资产重组对上市公司业绩的重要影响。并就控制性股东对上市公司“掏空”和“支持”行为特征进行了分析。文中显示,控制权转移以后上市公司的业绩和关联性资产重组有密切关系,上市公司业绩的变化,在一定程度上和控制性股东利用资产重组对上市公司进行“掏空”和“支持”相关联。文中揭示了影响控制性股东掏空或支持上市公司的因素,借此提出相关政策建议。     

Effect of disclosure regulation on earnings management through related-party transactions: Evidence from Taiwanese firms operating in China

This study examines the effect of disclosure regulation on earnings management using Taiwanese companies conducting transactions with China as the institutional setting. Measuring earnings management by the amount of discretionary accruals (DACCs), the study shows that disclosure regulation mitigates DACCs of Taiwanese firms engaging in related-party transactions with Chinese entities. Following enactment of the disclosure regulation in November 2000, DACCs among Taiwanese enterprises conducting transactions via offshore affiliates dropped. While the disclosure regulation helps to reduce earnings management, this study reports that such effect is asymmetric between high-tech firms and non–high-tech firms. Specifically, the disclosure regulation is effective in reducing earnings management among firms in non–high-tech sectors. However, such effect is not significant among firms in high-tech sectors. This study discusses the implications of empirical findings for corporate management, regulatory agencies, and firm stakeholders.     

非货币性交易及会计处理

论述了非货币性交易会计准则产生的背景及会计处理问题。     

电子传真在证券交易中的应用

绿色低碳生活已成为人们日益关注的热点问题,不少企业对此也都纷纷响应。目前,不少公司常会面临这样的问题：一些部门搬到别的办公楼,以前拿着纸质文件来回签字的方法就行不通了。为解决这一问题,我们研究了很多解决方案,如通过电子邮件、MSN等,但这些方案都有明显的缺点。最终,我们找到了电子传真解决方案。