IDEAS home Printed from https://ideas.repec.org/a/vrs/joinma/v17y2025i4p32-58n1002.html

Between Tunneling and Efficiency – A Global Empirical Review of the Impact of Related-Party Transactions (RPT) on Subsidiary Performance

Author

Listed:
  • Wołosz Małgorzata

    (SAN University, Łódź, Poland)

Abstract

Objective The purpose of this article is to provide a review of the empirical scientific literature concerning the impact of Related-Party Transactions (RPTs) on subsidiary performance from an intercontinental perspective. The goal is to identify common patterns, regional differences resulting from institutional context, and key determinants of RPT effects. Methodology The article reviews empirical literature published between 2009 and 2025, incorporating classic theoretical positions. The analysis is organized regionally, sorting results across four main areas: Asia, Europe, Africa, and North and Latin America. Findings The RPT impact is ambivalent, driven by three factors: governance quality, ownership structure (the control/profit wedge), and motivation. Asia and Latin America demonstrate the coexistence of tunneling (expropriation) and propping (support), often utilizing RPTs as a capital market substitute. Europe and North America primarily use RPTs for tax optimization due to stricter regulations and developed markets. Value Added This review provides a comparative, balanced assessment of RPT influence. Its value lies in the synthetic intercontinental analysis and the integration of the conflict, efficiency, and resource theories, leading to the identification of the three main determinants of RPT effects. Recommendations Subsidiaries must implement procedures for assessing the arm’s length nature of RPTs and strengthen board monitoring. Regulators should harmonize regulations and continue implementing OECD BEPS initiatives to limit tax base erosion. Future studies should focus on long-term RPT effects on investment and financial stability.

Suggested Citation

  • Wołosz Małgorzata, 2025. "Between Tunneling and Efficiency – A Global Empirical Review of the Impact of Related-Party Transactions (RPT) on Subsidiary Performance," Journal of Intercultural Management, Paradigm, vol. 17(4), pages 32-58.
    • Handle: RePEc:vrs:joinma:v:17:y:2025:i:4:p:32-58:n:1002
    DOI: 10.2478/joim-2025-0014
    as

    Download full text from publisher

    File URL: https://doi.org/10.2478/joim-2025-0014
    Download Restriction: no
    File URL: https://libkey.io/10.2478/joim-2025-0014?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Theresa Lohse & Nadine Riedel, 2013. "Do Transfer Pricing Laws Limit International Income Shifting? Evidence from European Multinationals," CESifo Working Paper Series 4404, CESifo.
    2. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 121-148.
    3. Mark Kohlbeck & Brian W. Mayhew, 2017. "Are Related Party Transactions Red Flags?," Contemporary Accounting Research, John Wiley & Sons, vol. 34(2), pages 900-928, June.
    4. Trisninik Ratih Wulandari & Doddy Setiawan & Ari Kuncara Widagdo, 2022. "Related Party Transactions and Firm Value in Indonesia: Opportunistic vs. Efficient Transactions," Risks, MDPI, vol. 10(11), pages 1-11, November.
    5. Cheung, Yan-Leung & Jing, Lihua & Lu, Tong & Rau, P. Raghavendra & Stouraitis, Aris, 2009. "Tunneling and propping up: An analysis of related party transactions by Chinese listed companies," Pacific-Basin Finance Journal, Elsevier, vol. 17(3), pages 372-393, June.
    6. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, April.
    7. Vincent Vicard, 2015. "Profit shifting through transfer pricing: evidence from French firm level trade data," Working papers 555, Banque de France.
    8. Mário Marques & Carlos Pinho, 2016. "Is transfer pricing strictness deterring profit shifting within multinationals? Empirical evidence from Europe," Accounting and Business Research, Taylor & Francis Journals, vol. 46(7), pages 703-730, November.
    9. Peng, Winnie Qian & Wei, K.C. John & Yang, Zhishu, 2011. "Tunneling or propping: Evidence from connected transactions in China," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 306-325, April.
    10. Elizabeth A. Gordon & Elaine Henry & Darius Palia, 2004. "Related Party Transactions And Corporate Governance," Advances in Financial Economics, in: Corporate Governance, pages 1-27, Emerald Group Publishing Limited.
    11. Mishra, Rohan Kumar & Pattnaik, Debidutta & Hassan, M. Kabir & Chandra, Abhijeet, 2025. "Research on related party transactions (RPTs): a systematic review and bibliometric analysis," International Review of Economics & Finance, Elsevier, vol. 103(C).
    12. Sakthi Mahenthiran & Berta Silva Palavecinos & Hanns De La Fuente-Mella, 2020. "The Effect of Board Links, Audit Partner Tenure, and Related Party Transactions on Misstatements: Evidence from Chile," IJFS, MDPI, vol. 8(4), pages 1-21, December.
    13. Jiang, Guohua & Lee, Charles M.C. & Yue, Heng, 2010. "Tunneling through intercorporate loans: The China experience," Journal of Financial Economics, Elsevier, vol. 98(1), pages 1-20, October.
    14. Martina Baumann & Tobias Boehm & Bodo Knoll & Nadine Riedel, 2020. "Corporate Taxes, Patent Shifting, and Anti-avoidance Rules: Empirical Evidence," Public Finance Review, , vol. 48(4), pages 467-504, July.
    15. Steven Balsam & Richard H. Gifford & John Puthenpurackal, 2017. "Related Party Transactions, Corporate Governance and CEO Compensation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(5-6), pages 854-894, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kinshuk Saurabh, 2023. "Expropriation mechanisms, corporate governance, and cross-border acquisitions by Indian firms," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(4), pages 395-409, December.
    2. Mishra, Rohan Kumar & Pattnaik, Debidutta & Hassan, M. Kabir & Chandra, Abhijeet, 2025. "Research on related party transactions (RPTs): a systematic review and bibliometric analysis," International Review of Economics & Finance, Elsevier, vol. 103(C).
    3. Agnihotri, Arpita & Bhattacharya, Saurabh, 2019. "Internationalization, related party transactions, and firm ownership structure: Empirical evidence from an emerging market," Research in International Business and Finance, Elsevier, vol. 48(C), pages 340-352.
    4. Mai, Nhat Chi, 2020. "Related Party Transactions, State Ownership, the Cost of Corporate Debt, and Corporate Tax Avoidance: Evidence from Vietnam," OSF Preprints y5qj3, Center for Open Science.
    5. Joseph P. H. Fan & Li Jin & Guojian Zheng, 2016. "Revisiting the Bright and Dark Sides of Capital Flows in Business Groups," Journal of Business Ethics, Springer, vol. 134(4), pages 509-528, April.
    6. Mani, Satya Prakash & Bansal, Shashank, 2025. "Does board demographic diversity constrain related party transactions? Evidence from India," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    7. Shahid Hussain & Nabeel Safdar, 2018. "Tunneling: Evidence from Family Business Groups of Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 10(2), pages 97-122, June.
    8. Cao, Ning & McGuinness, Paul B. & Xi, Chao, 2024. "Majority-of-the-minority shareholder votes and investment efficiency," Journal of Corporate Finance, Elsevier, vol. 89(C).
    9. Haiyan Jiang & Gary Tian & Donghua Zhou, 2021. "The influence of the deregulation of short‐selling on related‐party transactions: Evidence from China," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(5-6), pages 1022-1056, May.
    10. Guang-Zheng Chen, 2020. "Related Party Transactions and Opinion Shopping," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(1), pages 1-9.
    11. Rohan Kumar Mishra & Frank Obenpong Kwabi & Abhijeet Chandra, 2025. "Corporate Social Responsibility, Related Party Transaction and Earnings Management: Evidence from India," Journal of Business Ethics, Springer, vol. 201(2), pages 331-369, October.
    12. Al-Dah, Bilal & Dah, Mustafa A. & El-Helaly, Moataz, 2025. "Board diversity and related party transactions," Finance Research Letters, Elsevier, vol. 77(C).
    13. Dou, Huan & Liu, Yuanyuan & Shi, Yaru & Xu, Hanwen, 2022. "Are related-party transactions beneficial or detrimental in emerging markets? New evidence of financial services agreements from China," International Review of Financial Analysis, Elsevier, vol. 81(C).
    14. Ranjeet Singh & Yogesh Chauhan & Nemiraja Jadiyappa, 2026. "The Cost of Related Party Transactions and the Intensity of Related Party Transactions: Evidence From Creditor Rights Reform," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 53(1), pages 5-31, February.
    15. Pietro Fera & Rosa Vinciguerra, 2022. "Minorities? Representativeness on the Board and their Effect on the Level of Compliance with the Italian RPTs Regulation," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2022(2), pages 57-88.
    16. Luo, Danglun & Piao, Zhirong & Wu, Cen & Zhang, Frank Feida, 2024. "Collateral damage: Evidence from share pledging in China," International Review of Financial Analysis, Elsevier, vol. 93(C).
    17. Chung, Heesun & Choi, Sunhwa & Jung, Woon-Oh, 2019. "Controlling shareholders' tax incentives and related party transactions," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    18. Cai, Guilong & Xie, Sujuan & Xu, Yue & Zeng, Yamin & Zhang, Junsheng, 2019. "Ultimate parent's board reform and controlling shareholder entrenchment: Evidence from a quasi-natural experiment in China," Emerging Markets Review, Elsevier, vol. 38(C), pages 389-403.
    19. Ding, Mingfa & Han, Yikai & Shen, Mi & Suardi, Sandy, 2025. "Political turnover and related party transactions in Chinese state-owned enterprises," Global Finance Journal, Elsevier, vol. 68(C).
    20. Habib, Ahsan & Muhammadi, Abdul Haris & Jiang, Haiyan, 2017. "Political Connections and Related Party Transactions: Evidence from Indonesia," The International Journal of Accounting, Elsevier, vol. 52(1), pages 45-63.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vrs:joinma:v:17:y:2025:i:4:p:32-58:n:1002. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://reference-global.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.