Corporate governance, size and disclosure of related party transactions, and firm value: Indonesia evidence

• Published in: International journal of disclosure and governance 2014-11, Vol.11 (4), p.341-365
• Main Authors: Utama, Cynthia A, Utama, Sidharta
• Format: Article
• Language: English
• Subjects: Accounting/Auditing; Business and Management; Corporate Finance; Corporate Governance; Disclosure; Executives; Financial statements; Influence; Original Article; Pricing policies; Related party transactions; Stockholders; Studies
• ISSN: 1741-3591; 1746-6539
• DOI: 10.1057/jdg.2013.23

This study aims to investigate whether (a) corporate governance (CG) practice has a negative impact on size of Related Party Transactions (RPTs); (b) size of RPTs affects firm value; and (c) better corporate governance practice and higher disclosure on RPTs reduce the negative impact of size of RPTs on firm value. Our sample covers listed companies at the Indonesian Stock Exchange during 2005–2007. We document that better CG significantly reduces the size of RP liabilities and marginally lowers the size of RP assets. Consistent with these findings, we find that size of RPTs has a positive impact on firm value when the transaction involves loans/borrowings from related parties and that it has no impact on firm value when the transaction involves asset placements in related parties. Finally, we find that for companies with less than full disclosure of RPTs, size of RP assets has a negative effect on firm value.