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Do related party transactions affect family firm valuations?

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  • Mark Kohlbeck
  • Hye Seung (Grace) Lee
  • Brian Mayhew
  • Jesus M. Salas

Abstract

We examine the likelihood and value relevance of related party transactions in family firms. Based on an extensive hand‐collected sample, we find that founder‐led family firms are more likely to enter into related party transactions than other firms. We also find that the founder‐led family firm valuation premium is reduced when these firms disclose related party transactions, especially opportunistic related party transactions. We also examine the significant change in related party transaction reporting regulations enacted in 2006 and find that it led to a decline in the number of value‐decreasing related party transactions for founder‐led family firms. We find a corresponding decrease in the detrimental effect of related party transactions on founder‐led family firms’ valuation. Our results suggest that changes in the 2006 SEC related party transaction reporting regulations better protected minority shareholders from wealth extraction via related party transactions in founder‐led family firms.

Suggested Citation

  • Mark Kohlbeck & Hye Seung (Grace) Lee & Brian Mayhew & Jesus M. Salas, 2023. "Do related party transactions affect family firm valuations?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(9-10), pages 1984-2020, October.
    • Handle: RePEc:bla:jbfnac:v:50:y:2023:i:9-10:p:1984-2020
    DOI: 10.1111/jbfa.12682
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