View full metadata
Cite as
-
Full Title
FINANCIAL REPORTING
-
Publisher
FrancoAngeli
-
ISSN
2036-671X (Printed Journal)
2036-6779 (Online Journal)
-
Journal Issue Number
1
-
Journal Issue Designation
1
-
Journal Issue Date (YYYY/MM)
2018/02
-
Full Title
Related parties disclosure: Is a risk-based approach more effective?
-
By (author)
-
First Page
5
-
Last Page
39
-
Language of text
English
-
Publication Date
2018/02
-
Copyright
2018 FrancoAngeli srl
Introduction or preface
Following recent corporate scandals increased attention has been paid to Relat-ed Party Transactions (RPTs), since they have often played a central role in abuses and frauds. Regulators have consequently been obliged to strengthen current regu-lations, introducing new bans and requirements aimed at guaranteeing the substantial and economic fairness of RPTs and a proper level of transparency. This reaction is due to the high inherent risk of these transactions and because companies in crisis tend to resort to this type of operation. In Italy, the regulations on RPTs were completely revamped in 2010. The material RPTs that have to be disclosed through an ad hoc communication were defined by former regulations through qualitative criteria, whereas now a quantitative approach is used in order to reduce subjectivity. The initial results of the new regulations show that a higher number of RPTs has been disclosed to the market, thus improving transparency, but the effects of RPTs remain unreported in Income Statements. Through an online questionnaire this paper, starting from previous research, in-vestigates potential improvements supported by independent directors involved in the RPT evaluation process. These independent Directors are uniquely placed to shed light on the experience of the initial years of application of the new Regula-tion, which may help lawmakers, after the lengthy initial consultation process, in-evitably influenced by divergent (and non-independent) interests without the bene-fit of the hindsight that is now available. It is to be hoped that lawmakers will take note of these results and fine-tune the regulations accordingly, without necessarily abandoning the quantitative approach, in order to increase the transparency of the information made available on RPTs.
Reference list of
10.3280/FR2018-001001
Unstructured Citation
Aguilera R.V., Filatotchev I., Gospel H. and Jackson G. (2008), An organizational approach to comparative corporate governance:
Costs, contingencies, and complementarity, Organization Science, 19(3), pp. 475-492.
https://doi.org/10.1287/orsc.1070.0322
Unstructured Citation
Aguilera R.V. and Jackson G. (2003), The cross-national diversity of corporate governance: Dimensions and determinants, Academy
of Management Review, 28(3), pp. 447-465.
https://doi.org/10.5465/amr.2003.10196772
Unstructured Citation
Altman E. (1968), Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy, Journal of Finance,
September, pp. 189-209,
https://doi.org/10.2307/2325319
Unstructured Citation
ASSONIME (2011), Analysis of the compliance with the Italian Corporate Governance Code: year 2010, Rome.
Unstructured Citation
Bsrth M.E., Beaver W.H. and Landsman W.R. (2001), The relevance of the value relevance literature for financial accounting
standard setting: another view, Journal of accounting and economics, 31(1), pp. 77-104.
https://doi.org/10.1016/S0165-4101(01)00019-2
Unstructured Citation
Bava F. and Gromis di Trana M. (2015a), Disclosure on Related Party Transactions: Evidence from Italian Listed Companies,
Accounting, Economics and Law-A Convivium,
https://doi.org/10.1515/ael-2014-0020
Unstructured Citation
Bava F. and Gromis di Trana M.G. (2015b), Revenues from related parties: a risk factor in the Italian listed company’s financial
statements, Corporate Owner-ship & Control, 883.
https://doi.org/10.22495/cocv12i4csp9
Unstructured Citation
Bhagat S. and Bolton B. (2008), Corporate governance and firm performance, Journal of Corporate Finance, 14, pp. 257-273,
https://doi.org/10.1016/j.jcorpfin.2008.03.006
Unstructured Citation
Bianchi M. and Bianco M., Italian Corporate Governance in the last 15 years: from pyramids to coalitions?, ECGI Finance working
paper, No. 144/2006,
https://doi.org/10.2139/ssrn.952147
Unstructured Citation
Beak J.S., Kang J.K. and Lee I. (2006), Business groups and tunneling: Evidence from private securities offering by Korean
Chaebols, J. Fin., 61, pp. 2415-2449,
https://doi.org/10.1111/j.1540-6261.2006.01062.x
Unstructured Citation
Berkman H., Cole R.A. and Fu L. J. (2009). Expropriation through loan guarantees to related parties: Evidence from China,
Journal of Banking and Finance, 33, pp. 141-156,
https://doi.org/10.1016/j.jbankfin.2007.11.001
Unstructured Citation
Chen C.W.K., Chen Z. and Wei J.K.C. (2009), Legal protection of investors, corporate governance, and the cost of equity capital,
Journal of Corporate Finance, 15, pp. 273-289,
https://doi.org/10.1016/j.jcorpfin.2009.01.001
Unstructured Citation
Chen-Wen C. and Chinshun W., Related Party Transactions and Ownership Concentration; Theory and Evidence, -- http://www.g-casa.com/conferences/singapore/papers_in_pdf/wed/Chen.pdf.
Unstructured Citation
Cheung Y.L., Jing L., Lu T., Rau P.R. and Stouraitis A. (2009), Tunneling and propping up: An analysis of related party transactions
by Chinese listed companies, Pacific-Basin Finance Journal, 17(3), pp. 372-393,
https://doi.org/10.1016/j.pacfin.2008.10.001
Unstructured Citation
Cheung Y.L., Rau P.R. and Stouraitis A. (2006), Tunneling, propping, and expropriation: evidence from connected party transactions
in Hong Kong, Journal of Financial Economics, 82(2), pp. 343-386,
https://doi.org/10.1016/j.jfineco.2004.08.012
Unstructured Citation
Coase R.H. (1937), The nature of the firm, Economica, 4(16), pp. 386-405.
https://doi.org/10.1111/j.1468-0335.1937.tb00002.x
Unstructured Citation
Djankov S., La Porta R., Lopez-De-Silanes F. and Shleifer A. (2008), The law and economics of self-dealing, Journal of financial
economics, 88(3), 430-465,
https://doi.org/10.1016/j.jfineco.2007.02.007
Unstructured Citation
Emshwiller J.R. (2003), Many Companies Report Transactions with Top Officers, Wall Street Journal, December 29, A1.
Unstructured Citation
Filatotchev I. and Wright M. (2005), Corporate governance life-cycle. (London: Edward Elgar).
Unstructured Citation
Filatotchev I., Toms S. and Wright M. (2006), The firm’s strategic dynamics and corporate governance Life cycle, International
Journal of Managerial Finance, 2(4), pp. 256-279.
https://doi.org/10.1108/17439130610705481
Unstructured Citation
FASB (2008), Original Pronouncements as Amended, Statement of Financial Ac-counting Concepts No. 2.
Unstructured Citation
Fooladi M. and Shukor Z.A. (2011), “Corporate Governance and Disclosure of Related Party Transactions”, (march 15), 2nd International Conference on Business and Economic Research (2nd ICBER 2011), Langkawi, Malaysia, 14-16 March. -- Available at SSRN: http://ssrn.com/abstract=2259539.
Unstructured Citation
Gordon E.A., Henry E., Louwers T.J. and Reed B.J. (2007), Auditing Related Party transactions: A literature Overview and Research
Synthesis, Accounting Horizons, 21, pp. 81-102,
https://doi.org/10.2308/acch.2007.21.1.81
Unstructured Citation
Gordon E.A., Henry E. and Palia D. (2004), Related party transactions and corporate governance, Advances in Financial Economics,
9(1), pp. 1-27.
https://doi.org/10.1016/S1569-3732(04)09001-2
Unstructured Citation
Gromis di Trana M. (2014), Le parti correlate nell’economia d’azienda. (Milano: Giuffrè).
Unstructured Citation
Healy P.M. and Palepu K.G. (2001), Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical
disclosure literature, Journal of Accounting and Economics, 31(1), pp. 405-440.
https://doi.org/10.1016/S0165-4101(01)00018-0
Unstructured Citation
Henry E., Gordon E.A., Reed B.J. and Louwers T.J. (2007). The Role of Related Party Transactions in Fraudulent Financial Reporting,
(June). -- Available at SSRN: http://ssrn.com/abstract=993532.
https://doi.org/10.2139/ssrn.993532
Unstructured Citation
Hofstede G. (2003), Culture’s consequences: Comparing values, Behaviors, Institutions and organizations across nations. (London: Sage).
Unstructured Citation
Hofstede G. (1984), Culture’s consequences: International differences in work-related values. (London: Sage).
Unstructured Citation
Holthausen R.W. and Watts R.L. (2001), The relevance of the value-relevance literature for financial accounting standard setting,
Journal of accounting and economics, 31(1), pp. 3-75.
https://doi.org/10.1016/S0165-4101(01)00029-5
Unstructured Citation
IFRS Practice statement, Application of Materiality to Financial Statements, October 2015, Comments to be received by 26 February 2016.
Unstructured Citation
Institute of chartered accountants in England and Wales. Guidance on materiality in financial reporting by UK entities Guidance on materiality in financial re-porting by UK entities, published in June 2008.
Unstructured Citation
Jensen M.C. and Meckling W.H. (1976), Theory of the firm: Managerial behavior, agency costs and ownership structure, Journal
of Financial Economics, 3(4), pp. 305-360.
https://doi.org/10.1016/0304-405X(76)90026-X
Unstructured Citation
Jessop D.C. and Farrar J.H. (2012), Watson S., Related party transactions in New Zealand: an empirical study of a flawed system, Company and Securities Law Journal, 30, pp. 110-142. -- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2026271.
Unstructured Citation
Jiang G., Lee C.M. and Yue H. (2010), Tunneling through intercorporate loans: The China experience, Journal of Financial Economics,
98(1), pp. 1-20.
https://doi.org/10.1016/j.jfineco.2010.05.002
Unstructured Citation
Jian M. and Wong T.J. (2003), Earnings management and tunneling through related party transactions: Evidence from Chinese corporate groups (Doctoral dissertation, Hong Kong University of Science and Technology).
Unstructured Citation
Jian M. and Wong T.J. (2010), Propping through related party transactions, Review of Accounting Studies, 15(1), pp. 70-105,
https://doi.org/10.1007/s11142-008-9081-4
Unstructured Citation
Kohlbeck M. and Mayhew B. (2004), “Related party transactions”, American Accounting Association, FARS Meeting Paper,
https://doi.org/10.2139/ssrn.591285
Unstructured Citation
Kohlbeck M. and Mayhew B.W. (2010), Valuation of firms that disclose related party transactions, Journal of Accounting and
Public Policy, 29(2), pp. 115-137,
https://doi.org/10.1016/j.jaccpubpol.2009.10.006
Unstructured Citation
Kun W. and Xing X. (2005), The Empirical Study on the Institutional Ownership and Resources Expropriation by the Related Parties [J], Nankai Business Re-view, 2, 27-33.
Unstructured Citation
La Porta R.L., Lopez-De-Silane F., Shleifer A. and Vishny R.W. (1996), Law and finance (No. w5661), National Bureau of Economic
Research,
https://doi.org/10.3386/w5661
Unstructured Citation
Liu Q. and Lu Z.J. (2007), Corporate governance and earnings management in the Chinese listed companies: A tunneling perspective,
Journal of Corporate Finance, 13(5), pp. 881-906.
https://doi.org/10.1016/j.jcorpfin.2007.07.003
Unstructured Citation
Melis A. (2005), Corporate governance failures: To what extent is Parmalat a particularly Italian case?, Corporate Governance
Failures, 13(4), pp. 478-488.
https://doi.org/10.1111/j.1467-8683.2004.00443.x
Unstructured Citation
Neuman W.L. (2000), Social research methods: Qualitative and quantitative approaches (4th ed.), Needham Heights: Allyn and Bacon.
Unstructured Citation
OECD (2004), Principles of Corporate Governance.
Unstructured Citation
OECD (2004), Principles of corporate governance. (Paris: OECD Publications).
Unstructured Citation
OECD (2012), Related Party Transactions and Minority Shareholder Rights. Publishing,
Unstructured Citation
Onesti T. (1995), Fattori ambientali e comportamenti contabili. Analisi comparativa dei sistemi contabili di alcuni paesi industrializzati. (Torino: Giappichelli).
Unstructured Citation
Pan T. and Hsiu-Cheng W., A study on the relationship between the policy of banks’ loan interest Rate and Related party transactions. (MA, Taiwan: Department of Finance, National Yunlin University of Science and Technology).
Unstructured Citation
Peng W.Q., Wei K.J. and Yang Z. (2011), Tunneling or propping: Evidence from connected transactions in China, Journal of Corporate
Finance, 17(2), pp. 306-325.
https://doi.org/10.1016/j.jcorpfin.2010.08.002
Unstructured Citation
Pizzo M. (2011), Related party transactions under a contingency perspective, Journal of Management and Governance,
https://doi.org/10.1007/s10997-011-9178-1
Unstructured Citation
Riyanto Y.E. and Toolsema L.A. (2008), Tunneling and propping: A justification for pyramidal ownership, Journal of Banking
& Finance, 32(10), pp. 2178-2187.
https://doi.org/10.1016/j.jbankfin.2007.12.044
Unstructured Citation
Ryngaert M.D. and Shawn T.E. (2011), Not All Related Party Transactions (RPTs) are the Same: Ex-Ante vs. Ex-Post RPTs., Journal
of Accounting Research, Forthcoming (November 28),
https://doi.org/10.1111/j.1475-679X.2012.00437.x
Unstructured Citation
Swartz M. and Watkins S. (2003), Power failure: The inside story of the collapse of Enron. Crown Business.
Unstructured Citation
Thomas C.W. (2002), The rise and fall of Enron. Journal of Accountancy, 193(4), p. 41.
Unstructured Citation
Williamson O.E. (1985), The economic institutions of capitalism: Firms, markets, relational contracting (Vol. 866). (New York: Free Press).
Unstructured Citation
Wong T.J. and Ming J. (2003), Earnings Management and Tunneling through Related Party Transactions: Evidence from Chinese Corporate Groups, EFA 2003 Annual Conference Paper No. 549. -- Available at SSRN: http://ssrn.com/abstract=424888.
Unstructured Citation
Yan T. and Huacheng W. (2007), Related Party Transactions, Benefits of Control and Earnings Quality, Accounting Research, 4, p. 010.
Unstructured Citation
Yan M. and Xiumei Z. (2006), Research on the Relationship between Earning Management by Related Party Transactions and Listed Company’s Profit being Transferred by Related parties. Accounting Research, 4, p. 005.
Unstructured Citation
Yi Lin W., Liu Y.A. and Keng I. (2010), Related party transactions, firm performance and control mechanisms: evidence from Taiwan, International research journal of finance and economics, 35, pp. 82-98.
Unstructured Citation
Young B. (2005), Related-Party Transactions: Why They Matter and What Is Disclosed, Corporate Governance Advisor, 13, pp. 1-7.
Unstructured Citation
Zengquan L., Zheng S. and Zhiwei W. (2004), Tunneling and Ownership Structure of a Firm: Evidence from Controlling Shareholder’s Embezzlement of Listed Company’s Funds in China, Accounting Research, 12, pp. 3-13.