Related party transactions and value impact on minority shareholders: evidence from Chinese companies listed in the Shanghai stock exchange

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School of Business | Master's thesis
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The objective of this thesis is to examine whether related party transactions listed Chinese companies conducted with their controlling shareholders destroy value for minority shareholders. In addition, this thesis seeks to identify corporate governance characteristics that could have a mitigating effect on the occurrence of related party transactions. The sample includes 1126 public announcements of related party transactions with controlling shareholders disclosed by 577 Chinese companies listed in Shanghai Stock Exchange in 2010 in accordance with regulatory requirements, the source of which is Shanghai Stock Exchange's website. Stock price data and key financial information for all the 894 listed companies are from Thomson Reuters One. In addition, the 2010 annual reports of all the listed companies are used to get data on corporate governance and information disclosure. The market-adjusted and mean-adjusted approaches are used to calculate short-horizon abnormal stock returns whereas simulation with bootstrapping is used to get long-horizon abnormal stock returns in relation to several benchmark portfolios. Ordinary Least Squares regressions and logit regressions are used to test the hypotheses. The main results of this thesis are: there is inconclusive evidence to suggest that related party transactions with controlling shareholders are particularly value-destroying for minority shareholders in the period studied, especially when it turns out that a prior detrimental types of related party transactions are not necessarily associated with ex post negative cumulative abnormal returns (CARs). Concentrated ownership and poor information disclosure quality are related to a higher probability of the occurrence of related party transactions, while the establishment of a dedicated related party transaction control committee and the engagement of one of the Big 4 auditors by the listed companies are related to a lower probability of the occurrence of related party transactions.
related party transactions, controlling shareholders, minority shareholder protection, corporate governance
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