Legal transplantation and related party transactions in emerging markets

Abusive transactions with related parties are more common in a concentrated ownership structure. Previous studies have debated that the fallout of concentrated corporate ownership (i.e. sizable corporate conglomerates and corporate enterprises owned by business families or the government of the state) is high in a relatively close market. Despite the adoption of the Anglo–US model in BRICS (Brazil, Russia, India, China, and South Africa) for improving transparency, accountability, and fairness, the rate of corporate failure involving abusive related party transactions has been high. This study examines differences in related party transactions (RPT) regulatory strategies among BRICS with respect to international standards (Anglo–US model) and local conditions. The study analyses to what extent BRICS nations have adopted the Anglo–US model by comparing the RPT regulatory framework with the convergence towards the Anglo–US model, divergence from the Anglo–US model, and unfolding of a new construct in BRICS. Overall, the study finds Brazilian and Russian RPT legislation the least convergent towards the Anglo–US model and RPT legislation in India, China, and South Africa fully convergent towards the Anglo–US model. BRICS have shown persistence or resistance towards the Anglo–US RPT legal transplantation. In certain aspects, BRICS have made a concerted effort to regulate abusive RPTs suitable to their local conditions. However, RPT legislation in BRICS nations has failed to address some major governance problems caused by concentrated ownership structures (monitoring of RPTs in pyramidal companies, same RPT thresholds for group and non-group companies, dominance of controlling shareholders on independent directors’ appraisal of RPTs, and the lack of adequate disclosure requirements for RPTs).