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Tunneling or Propping? Evidence for Related Party Transactions in Israel

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Listed:
  • Amzaleg Yaron
  • Ben- Zion Uri
  • Rosenfeld Ahron

Abstract

This paper analyzed business transactions between public firms in Israel and their controlling shareholders. Firms that reported such related party transaction (RPT) are found to be on average more profitable although they tend to have lower market-to-book ratios compare to matching firms that don’t report any such transaction. Analyzing market reaction to a report of RPT, evidence of tunneling is found mainly through excessive direct compensation to a related party and evidence of propping through other type of transactions such as transfer of assets and buying/selling of goods and services. Consistent with previous research, tunneling appeared to be associated with weaker corporate governance.

Suggested Citation

  • Amzaleg Yaron & Ben- Zion Uri & Rosenfeld Ahron, 2016. "Tunneling or Propping? Evidence for Related Party Transactions in Israel," International Journal of Management Sciences, Research Academy of Social Sciences, vol. 7(6), pages 332-349.
    • Handle: RePEc:rss:jnljms:v7i6p5
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    References listed on IDEAS

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