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

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  • Cheung, Yan-Leung
  • Qi, Yuehua
  • Raghavendra Rau, P.
  • Stouraitis, Aris

Abstract

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 33 (2009)
Issue (Month): 5 (May)
Pages: 914-924

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Handle: RePEc:eee:jbfina:v:33:y:2009:i:5:p:914-924

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: International corporate governance Expropriation Related party transactions Tunneling;

References

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Cited by:
  1. Hamelin, Anaïs, 2011. "Small business groups enhance performance and promote stability, not expropriation. Evidence from French SMEs," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 613-626, March.
  2. Engelen, Peter-Jan & van Essen, Marc, 2010. "Underpricing of IPOs: Firm-, issue- and country-specific characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1958-1969, August.
  3. Lei, Adrian C.H. & Song, Frank M., 2011. "Connected transactions and firm value: Evidence from China-affiliated companies," Pacific-Basin Finance Journal, Elsevier, vol. 19(5), pages 470-490, November.

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