Thesis (Ph. D.)--Hong Kong University of Science and Technology, 2003. / Includes bibliographical references (leaves 65-75). Also available in electronic version. Access restricted to campus users.

Thesis (JSD)--City University of Hong Kong, 2009. / "Submitted to School of Law for the degree of Doctor of Juridical Science." Includes bibliographical references (leaves 337-358)

published_or_final_version / abstract / Economics and Finance / Doctoral / Doctor of Philosophy

Thesis (Ph. D.)--University of Hong Kong, 2006. / Title proper from title frame. Also available in printed format.

This paper investigates the impact of related party transactions on a firm’s operating performance and market-based performance, as well as the impact of institutional ownership on the use of related party transactions. Using a sample of 1218 deals from S&P1500 firms from 2007 to 2018, we propose and examine three relevant hypotheses: (a) related party transactions, especially, “Red-flag” related party transactions are negatively related to firm’s operating performance, (b) related party transactions, especially, “Red-flag” related party transactions are negatively related with firm’s marketbased performance, (c) institutional ownership is negatively related with related party transactions. In summary, we do not find a significant relationship between related party transactions and firm’s operating performance, such as ROA, Profit Margin and COGS. As for firm’s market-based performance, we found related party transactions are positively related with Tobin’s-Q, but are not significantly related with 12-months buy and hold abnormal return. Finally, we do not find any significant relationship between overall institutional investors and RPTs, but we find short-horizon institutional investors reduce the use of related party transactions, but long-horizon institutional investors do not limit the use of RPT

In the presence of business groups, the expropriation through related party transactions (RPTs) is common and costly to minority shareholders. At the same time, it is well recognized that RPTs can help firms overcome market shortcomings. Using the setting of India's RPT voting rule, I find that a mandatory and binding shareholder voting mechanism helps filter out expropriation. Minority shareholders actively raise their voice against RPT resolutions, resulting in substantial shareholder dissent. My difference-in-difference analysis reveals that shareholder voting has a significant deterrence effect on RPT volume, especially on financial RPTs. I also find that stock prices react positively to news signaling the passage of the voting rule, and that the association between firm profitability and RPT increases following rule's adoption, suggesting that rule has a positive effect on shareholder value. Lastly, I show that mandatory RPT voting makes Indian firms more attractive to foreign institutional investors.

Transações entre partes relacionadas são cada vez mais discutidas por reguladores, agentes econômicos e pela academia, não só no Brasil. Tal decisão empresarial, muito comum em grupos de sociedade que buscam eficiências gerenciais, suscita preocupações crescentes pelo potencial de conflito de interesses que traz em seus termos e condições, podendo beneficiar injusta e até fraudulentamente controladores e administradores de determinadas sociedades. Uma devida regulação da matéria faz-se imprescindível no crescente e promissor mercado de capitais brasileiro. Estruturada em três capítulos, esta tese parte da discussão sobre grupos e as transações entre suas partes relacionadas com o objetivo de delimitar o seu escopo. Em seguida, trata da regulação da matéria no direito brasileiro, culminando com seu estudo empírico e multidisciplinar. Observa-se, nessa investigação, a multiplicidade e a descoordenação regulatória que existe sobre o assunto em nosso país, seja em razão das estratégias regulatórias existentes, seja pelas diversas soluções jurídicas adotadas. O tema demanda uma reflexão profunda para receber uma nova e adequada regulação, não podendo seus aspectos jurídicos, econômicos, sociológicos e estratégicos ser ignorados, mas considerados de forma complementar. Contribuições da governança corporativa, ética empresarial e contabilidade precisam ser igualmente incorporadas nessa análise integrada. Este trabalho chega a quatro conclusões: (a) compreender grupos e suas relações contratuais internas é cada vez mais complexo e multidisciplinar e sua regulação precisa ser bem pensada e adequada, sob pena de intervenção indevida, desnecessária e excessiva na liberdade de organização empresarial; (b) os conceitos que existem sobre o assunto são demasiadamente amplos, extrapolando relações societárias, ajudando a fomentar uma regulação genérica e descoordenada; (c) a regulação do tema sempre foi reativa a crises, com modelos e soluções jurídicas pontuais e não coordenados entre si, desprezando-se custos organizacionais e outros efeitos negativos internos e externos, em vez de serem claros e lógicos e envolverem uma política pública mais direcionada, considerando estudos empíricos e dados oficiais já disponíveis; e (d) a realidade do mercado de capitais brasileiro está em crescente mutação e possui características peculiares, razão pela qual qualquer regulação do tema não se deve simplesmente importar soluções estrangeiras. / Related party transactions are increasingly being discussed by regulators, economic agents and scholars, not only in Brazil. Such business decision, very common in business groups that seek for management efficiencies, brings concerns as to its potential conflicts of interests arisen out from its terms and conditions, which may lead to unfair and even fraudulent benefits to controlling shareholders and managers of certain companies. Structured in three chapters, this thesis starts from the discussion on business groups and related party transactions aiming at limiting its scope. Then it deals with the current regulation of the subject in Brazil, concluding with its empirical and multidisciplinary studies. Such examination leads to the fact that such Brazilian regulation is multiple and not coordinated, either because of the existing regulatory strategies or in view of the adopted legal solutions. The subject requires a deep analysis in order to be subject to a new and adequate regulation, and their legal, economic, sociological, and strategic aspects cannot be ignored, but considered in a complementary way. This thesis comes to four conclusions: (a) the understanding of business groups and its internal contractual relations is becoming more complex and multidisciplinary and its precise regulation may be well thought and adequate, otherwise there will be an unduly, unnecessary, and excessive intervention on the freedom for business structuring; (b) the definitions on the subject are extremely broad, beyond equity holding, which helps to stimulate its generic and not coordinated regulation; (c) the regulation on the subject has always been reactive to crises, with illogical specific legal models and solutions, which ignore organizational costs and other internal and external negative effects, despite being clear and coordinated, involving a more directed public policy considering available empirical studies and official data; and (d) the reality of the Brazilian capital market is increasingly changing and has peculiar characteristics, therefore any regulation on the subject shall not simply import foreign solutions.

Recently, every main country in the world has implemented transfer pricing system in order to ensure every multinational enterprise would also be able to pay their taxes equitably and reasonably to the countries which they established their multinational enterprises, and has requested the prices of business transaction between every related party have to be set up and adjusted by arm¡¦s length principle. Moreover, in order to follow the initiative of OECD, adopt the current world trend, and avoid the higher inspection risk for our enterprises, Taiwan has established the method of regulation on December twenty- eighth, 2004 by consulting OECD guidelines and tax law of every country in the world, and has started to implement transfer pricing system. The Taiwanese transfer pricing system has integrated in many ways and in many-sided. It also has extended globally. If everyone could cooperate with mutual benefit, the transfer pricing system would be able to maintain the right of native taxation and effectively protect the right of multinational enterprises; hence it is not only a tax system, but art. Therefore, the checking model of transfer pricing system is very different from the case of normal profit-seeking enterprises. The checking model of the current tax authority mainly focuses on their jurisdiction and formal conditions, so it is interesting to see if our tax authority has capability of doing transfer pricing case which emphasizes on the point of taxation principles in substance or not. In addition, because our profit-seeking enterprises are mainly small or middle size corporations, there is a challenge to them to meet their duty and to provide all the requested certificates under the request of the new system, so it is also a point to discuss with. In this research, I tried to establish an evaluation standard by consulting policy estimated theory, and designed a survey which has collected all of recently related books, articles, references, and practiced thoughts in order to have an objective investigation. Also, in the survey, I would like to look into the situations of the following three points after practice of transfer pricing system. First, I would like to find out the thoughts of related interested parties after practice of this policy. Finally, what satisfactions of appropriateness, neutrality, efficiency, responsiveness, and side-effects externalities would be in this policy efficiency analysis? In addition, the collected data were analyzed with Chi-Square test, cross analysis, one-way ANOVA, multiple comparison analysis, and correlation analysis. In my major research findings, transfer pricing system has been known in the certain level by every related interested party. Moreover, this policy is in the high appropriate level and efficient level. However, this policy is in the low neutral level of land tax and other levies, and in the low responsive level. Therefore, there are other side effects in this policy as well, such us: increasing tax misgiving from every enterprise, increasing taxation, and checking cost, etc,. Also, in the result of this research paper, there are twelve suggestions that have collected from the responses of the survey, the problem finding, and some practical difficulties from the study of research institute and some other comments. These twelve suggestions could provide to related government organization as reference material in order to revise the law and advance tax system and tax policy.

Transações entre partes relacionadas são cada vez mais discutidas por reguladores, agentes econômicos e pela academia, não só no Brasil. Tal decisão empresarial, muito comum em grupos de sociedade que buscam eficiências gerenciais, suscita preocupações crescentes pelo potencial de conflito de interesses que traz em seus termos e condições, podendo beneficiar injusta e até fraudulentamente controladores e administradores de determinadas sociedades. Uma devida regulação da matéria faz-se imprescindível no crescente e promissor mercado de capitais brasileiro. Estruturada em três capítulos, esta tese parte da discussão sobre grupos e as transações entre suas partes relacionadas com o objetivo de delimitar o seu escopo. Em seguida, trata da regulação da matéria no direito brasileiro, culminando com seu estudo empírico e multidisciplinar. Observa-se, nessa investigação, a multiplicidade e a descoordenação regulatória que existe sobre o assunto em nosso país, seja em razão das estratégias regulatórias existentes, seja pelas diversas soluções jurídicas adotadas. O tema demanda uma reflexão profunda para receber uma nova e adequada regulação, não podendo seus aspectos jurídicos, econômicos, sociológicos e estratégicos ser ignorados, mas considerados de forma complementar. Contribuições da governança corporativa, ética empresarial e contabilidade precisam ser igualmente incorporadas nessa análise integrada. Este trabalho chega a quatro conclusões: (a) compreender grupos e suas relações contratuais internas é cada vez mais complexo e multidisciplinar e sua regulação precisa ser bem pensada e adequada, sob pena de intervenção indevida, desnecessária e excessiva na liberdade de organização empresarial; (b) os conceitos que existem sobre o assunto são demasiadamente amplos, extrapolando relações societárias, ajudando a fomentar uma regulação genérica e descoordenada; (c) a regulação do tema sempre foi reativa a crises, com modelos e soluções jurídicas pontuais e não coordenados entre si, desprezando-se custos organizacionais e outros efeitos negativos internos e externos, em vez de serem claros e lógicos e envolverem uma política pública mais direcionada, considerando estudos empíricos e dados oficiais já disponíveis; e (d) a realidade do mercado de capitais brasileiro está em crescente mutação e possui características peculiares, razão pela qual qualquer regulação do tema não se deve simplesmente importar soluções estrangeiras. / Related party transactions are increasingly being discussed by regulators, economic agents and scholars, not only in Brazil. Such business decision, very common in business groups that seek for management efficiencies, brings concerns as to its potential conflicts of interests arisen out from its terms and conditions, which may lead to unfair and even fraudulent benefits to controlling shareholders and managers of certain companies. Structured in three chapters, this thesis starts from the discussion on business groups and related party transactions aiming at limiting its scope. Then it deals with the current regulation of the subject in Brazil, concluding with its empirical and multidisciplinary studies. Such examination leads to the fact that such Brazilian regulation is multiple and not coordinated, either because of the existing regulatory strategies or in view of the adopted legal solutions. The subject requires a deep analysis in order to be subject to a new and adequate regulation, and their legal, economic, sociological, and strategic aspects cannot be ignored, but considered in a complementary way. This thesis comes to four conclusions: (a) the understanding of business groups and its internal contractual relations is becoming more complex and multidisciplinary and its precise regulation may be well thought and adequate, otherwise there will be an unduly, unnecessary, and excessive intervention on the freedom for business structuring; (b) the definitions on the subject are extremely broad, beyond equity holding, which helps to stimulate its generic and not coordinated regulation; (c) the regulation on the subject has always been reactive to crises, with illogical specific legal models and solutions, which ignore organizational costs and other internal and external negative effects, despite being clear and coordinated, involving a more directed public policy considering available empirical studies and official data; and (d) the reality of the Brazilian capital market is increasingly changing and has peculiar characteristics, therefore any regulation on the subject shall not simply import foreign solutions.

Recent scandals involving related party transactions (RPTs) have attracted researchers’ and governments’ attention. Because imperfections exist in the legislation of RPTs, business groups might abuse transfer pricing of such transactions for certain purposes. These purposes include earnings management of listed companies that seek to attract investors and profit shifting from subsidiaries to parent companies. This study investigates the impact of corporate governance on the choice of transfer pricing methods in China. I classify transfer pricing methods into two major groups (i.e., market-based and cost-based methods). I hypothesize that companies with weak corporate governance are more likely to use cost-based pricing methods, which are regarded as subjective and more easily manipulated. According to previous studies on corporate governance, a smaller board size, CEO-Chairman duality (i.e. the CEO and the Chairman of the company are the same person), and a lower percentage of independent directors on the board are indicators of weak corporate governance. Using data collected from annual reports of Chinese listed firms in the Shanghai and Shenzhen Stock Markets from 2003 to 2005, I find that government-controlled companies are more likely to use market-based methods than others. It is consistent with the hypothesis that ownership has an impact on the choice of transfer pricing methods. The results also show that when the chairman of the board and the CEO of the company is the same person, companies are more likely to use cost-based methods. However, inconsistent with my hypothesis, the results indicate that firms with small boards are more likely to choose cost-based methods than firms with large boards. This study extends prior research on transfer pricing by focusing on the impact of corporate governance. Furthermore, this study suggests that regulators might limit transfer pricing manipulations by stipulating a firm’s corporate governance structure. This research also draws both regulators’ and investors’ attention to the impact of corporate governance on transfer pricing methods.