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The impact of Corporate Governance Performance on the occurrence of

RPTs. A Study of Indian stock market.


Abstract
The paper investigated the impact of corporate governance performance on the occurrence of
party transactions. The study utilizes an extensive sample of BSE 500 hundred companies for a
period of six years. The study proposes that better the corporate governance performance of the
company more efficient are the related party transactions, thus leading to the better performance
of the firm. The study proposes to put a better governance mechanism in place in order to
improve the performance of the firms. The policy implications of the study has also been
discussed. The study found a significant impact of corporate governance components on the
occurrence of Related Party Transactions (RPTs).

Introduction
During the recent times the emergence of various accounting scandals (Satyam, Enron) have
amplified the concern of regulators towards corporate monitoring mechanism in general and
related party transactions (RPTs) in particular. Since the related party transactions are conducted
internally within the company (mostly with directors, subsidiaries, managers etc.) it becomes
very tough for outsiders to detect any influenced transactions. Although RPTs are always
associated with negative intentions like tunneling of funds and risking the concern of
stakeholders and creditors. But it is not always perform an accounting fraud, in presence of better
corporate governance mechanism it can have positive impact on the performance of the firm
(Chen & Chien, 2007). All the regulators, market investors, and other stakeholders consider
RPTs as possible source of conflict which will subsidize the managers’ agency along with the
watch dog function corporate board. The difference in objectives regarding related party
transaction is in accordance with agency problem as proposed by various researchers (Berle and
Means, 1932; Jensen and Meckling, 1976, Claessens et al, 2002). Various studies proposed the
term tunneling as the condition as when controlling shareholders transfer funds and other
benefits to enhance their personal gains. (Johnson et al; 2000b; Wurgler, 2000; Bertrand et al;
2002). Further many other researchers in their study other researchers has blamed tunneling as
the main enhancer and contributor of Asian financial crisis of 1997 to 1999 (La Porta et al., 2003,
Gao and Kling 2008, Cheung et al. 2006, Atanasov 2005, Dow and McGuire 2009, Peng et al;
2010, Dahya et al; 2008). Gordon, Henry & Palai (2004) in their study have proposed two
contrasting views of RPTs. On one side they are they have taken conflict of interest (Berle and
Means, 1932; Jensen and Meckling, 1976) view which proposes that related party transactions
are harmful for the company. On other hand they took into consideration efficient transaction
(Coase, 1937) and Williamson, 1975) view which proposes that RPTs add value to the company.

With both effects in place it becomes very difficult for propose whether such transactions
are beneficial or harmful for the company. Although most of the studies are in favor of the
argument that RPTs are detrimental to the company(La Porta et al., 2003, Gao and Kling 2008,
Cheung et al. 2006, Atanasov 2005, Dow and McGuire 2009, Peng et al; 2010, Dahya et al;
2008), but we cannot also ignore the findings of contrasting studies. Although it is very evident
that more the disclosure of RPTs less are the chances of occurrence of any fraud due to related
party transactions (Cheung et al. 2006, Dahya et al; 2008) as it makes information available to all
the stakeholders of the company. Various high profile corporate scandals have its roots in RPTs
(For example: Enron, Tyco, Adelphia and Satyam Computers). The owners of Parmalat group
tunneled billions through the process of RPTs (Enriques and Volpin, 2007).

There are numerous studies which show that there is a significant evidence that RPTs are used as
a tool for transfer of resources. Overpayment for acquired assets, loans at subsidized rates, sales
to related parties to show better performance, understating debts and overstating profits are very
common mechanisms used (Srinivasan, 2013). High RPTs will have a subsidizing impact on the
transparency in financial reporting and diminishes the value of company and ultimately leads to
stagnate the growth of capital markets of the country (Dow and McGuire 2009, Peng et al; 2010
and Srinivasan, 2013). Golden et al. (2004) in their study proposed that the RPTs which are
complex in nature put forward very complex corporate governance challenges. Beasley (1996) in
his study has provided empirical evidence which shows a significant positive relationship
between the percentage of independent directors and occurrence of financial statement fraud.
Core, et.al. (1999) in their study have proposed that weaker corporate governance performance is
significantly related with higher agency problems and weaker financial performance. Mayhew
(2010) in his study proposed that companies which are indulging in RPTs have low market
valuation and diminishing subsequent returns. The huge impact that RPTs are having on the
value of the firm creates need to identify the measures which will act as a tool to keep a check on
occurrence of RPTs. Corporate governance or its components have been proposed by various
studies as a mechanism to keep a check on the occurrence of RPTs (Fama & Jensen, 1983;
Samuel, et al., 2004; Goodstein, et al., 1994; Chin, et al., 2006; Zahara & Pearce, 1989; Xie, et
al., 2003; Peasnall, et al., 2005). So there exists a significant need to understand the relationship
between the corporate governance and RPTs. The primary motivation of the study is to
understand the relationship between the corporate governance performance and RPTs in Indian
context. The study is an effort to add to an existing literature on the relationship between the
corporate governance performance and RPTs. The study further specifies as it identifies the
relationship between the various elements of corporate governance and their impact on
occurrence of RPTs.

The rest of the paper follows as (i) Literature review, (ii) Need for Study (iii) Objectives of the
study (iv) Research Methodology, (v) Data analysis, (vi) Results and Discussions, (vi)
Implications and Limitations and (vii) References and Bibliography.

Literature Review

Corporate governance can be put forward as a single solution to overcome the difference of
opinion among the various stakeholders of the company (Hamid and Ataullah, 2015). Shiefer and
Vishny (1997) in their study define corporate governance as the mechanism through which the
providers of capital ensure themselves of favorable returns on their capital. The difference of
interest between the managers and owners of business further enhances the importance of
corporate governance in increasing the efficiency of the business (Epps & Cereola 2008). The
board of directors forms one of the important servings of any organization which helps in
safeguarding and steering the interests of shareholders towards better returns. Numerous studies
have found a significant impact of governance performance on the financial performance of the
firm (Gompers et.al. 2003; Wintoki et al., 2007; Adams et al., 2008; Bhagat & Bolton 2008).
While evaluating the impact of board governance characteristics found that board size negatively
effects the corporate governance performance (Samuel, et al., 2004; Goodstein, et al., 1994;
Chin, et al., 2006; Zahara & Pearce, 1989; Xie, et al., 2003; Peasnall, et al., 2005). Yermack
(1996) while evaluating the performance of board found that larger sized board may face
problems in communication hence may lead to inefficient board. Klien (2002) suggested that
smaller boards have more effective information sharing and processing. Moreover smaller boards
have significant positive impact on the reduction of related party transactions and better board
performance. Hence our first hypothesis will be:
H1: In an appropriate range smaller board size is helps to reduce the occurrence of RPTs

Fama and Jensen (1983) in their study of impact of outside directors on agency conflict proposed
that independent directors are the keen factors that can reduce the agency problem arising due to
the RPTs. Since independent directors do not have interest in enhancing the profits of the
company being outside to the company enhances their performance as directors (Zahara &
Pearce, 1989). Hence the independent directors are believed to be working for the best interest of
minority shareholders (John et al., 2012). Gao and Kling (2008) have suggested a significant
impact of outside directors on reduction of operational tunneling. Thus our second hypothesis
will be:

H2: A higher percentage of outside directors on board has negative impact on the occurrence of
RPTs.

Moore (2002) in his study found that it is mandatory for a company to have optimal number of
meetings during the financial year as it will have significant impact on its financial and
operational performance. Ward (1991) in his study proposed that board should meet at least four
times during a period of one year. He also pressed on need for committee meetings every month.
Moore (2002) also proposed that board should meet at least six times in a period of one year.
Further it has also been put forward by various studies that higher the presence of independent
directors in the board meeting more are the chances that decisions will be taken in favor of
minority shareholders (Gao and Kling, 2008). John et.al. (2012) in their study proposed that
more the presence of independent directors at AGM/EGM more less are the chances of
accounting frauds arising due to the occurrence of RPTs. OECD in its principles of corporate
governance (Principle VI (E)) expects the lead-independent director to be chairing the meeting of
outside directors. Under section 173(i) of Companies Act 2013 every company should hold a
minimum of 4 meetings during the year (from January to December) and the gap between two
meetings should not be more than 120 days. Hence leading to two hypothesis which are:

H3: The higher number of board meetings are inversely related to occurrence of RPTs.

H4: The percentage independent directors present at board meetings is inversely proportional to
RPTs

H5: The higher percentage of independent directors present at AGM/EGM is inversely


proportional to occurrence of RPTs.
Literature regarding the agency problem has already demonstrated that the resourceful intentions
of mangers can be altered by attaching a substantial amount of managers’ salary with the
performance of the firm. This will motivate the managers to work harder and select the
investment proposals on rational thinking not on preferential basis (Holmstrom and Hart, 1987
and Hart, 1979). Jensen and Murphy (1990) in their research proposed that only a small fraction
(0.005%) of compensation is associated with the performance of the company. Hall and Gao
(1989) on the other hand put forward that small change in compensation leads to a higher change
in the shareholders’ value. Thus leading to another hypothesis which is

H6: Higher compensation of top level managers is inversely proportional to occurrence of RPTs

Audit quality of the firm is also very important in reducing the occurrence of related party

transactions. The higher reputed firm will ask for more amount than its less reputed counterpart.

The higher proportion of auditor’s fee to total audit fee more are the chances that they will press

high efforts to analyze the financial statements of the company (Gao and King 2008). So better

the auditor structure and audit performance less are the chances of occurrence of related party

transactions. So leading to another hypothesis which is

H7: The higher percentage of auditor’s fee lesser are chances of occurrence of related party
transactions.

Hence we can say that the various attributes of corporate governance have considerable impact

on the occurrence of related party transactions. They help to curb the various accounting frauds

occurring due to the RPTs. In this study we will try to identify whether and how much does

various attributes of corporate governance impact the occurrence of related party transactions.

Research Gap

The recent regulatory interventions in India through enactment of Companies Act 2013 and other

amendment have brought related party transactions in forefront of the debate on corporate

governance in India. However, available framework to comprehend RPT is inadequate and


wanting. The study of corporate governance and its impact on related party transactions has its

roots from Blue Ribbon Committee (1999). With such a huge importance there is still a dearth of

studies which have identified the relationship between the corporate governance performance

and RPTs. There are very few studies which have tried to identify the impact of related party

transactions. Further not many studies have tried to find a proper relationship between the

corporate governance performance and RPTs particularly in India although a significant evidence

suggest that RPTs are having detrimental effect on the performance of firm and corporate

governance can be used as a tool to keep a check on the occurrence of RPTs. Studying the

relationship between the RPTs is important for investors, policy makers and most importantly for

firms. For investors it can act as a tool to decide for their investment. For policy makers it will

act as boost to focus their policies on enhancing transparency in financial transactions. For firms

it will act as standard for the amount of focus they should put in corporate governance in order to

enhance the value of firm. The study is motivated by the need to understand the importance of

corporate governance and its relationship with the RPTs. So that the transparency in financial

reporting will enhance leading to better valuation of firms and ultimately to growth in capital

markets. The study address the said gap in the literature by empirically investigating into the

impact of corporate governance on related party transactions in the Indian context. This is likely

to provide critical input for future policy making and research and further strengthening the

governance structure of listed firms in India.

When we analyze the scenario in Indian context which is a growing economy the lack of

transparency in corporate decision making is very evident (Masood and Zaleha, 2011). With the

emergence of corporate frauds like Satyam it has enhanced the importance of analyzing the

transactions occurring between the related companies. So it has led to greater focus on how to

keep a check on RPTs and this study is an effort to highlight the impact of corporate governance
factors on the occurrence of RPTs. It will help us to identify how various factors of corporate

governance are effecting the mechanism of transaction and keeping a check on the amount of

occurrence. This study will act as a tool to amplify the importance of corporate governance and

its inclusion in policy making. Further with the emergence of bank frauds in India the focus on

transparency and governance is need of an hour.

Objectives
1. To understand the nature of relationship between the corporate governance on related party

transactions

2. To empirically investigate the impact of corporate governance on related party transactions

amongst listed companies in India.

2.1 To investigate the impact of board size on occurrence of RPTs amongst listed companies in

India.

2.2 To investigate the impact of percentage of outside directors on occurrence of RPTs

amongst listed companies in India.

2.3 To investigate the impact of number of board meetings held in financial year on

occurrence of RPTs amongst listed companies in India.

2.4 To investigate the impact of percentage of independent directors present at board

meeting on occurrence of RPTs amongst listed companies in India.

2.5 To investigate the impact of percentage of independent directors attended AGM/EAGM

on occurrence of RPTs amongst listed companies in India.

2.6 To investigate the impact of compensations of top level managers as percentage of net

profit on occurrence of RPTs amongst listed companies in India.


2.7 To investigate the impact of proportion of auditor’s remuneration to total audit fee on

occurrence of RPTs amongst listed companies in India.

Research Methodology

Data source and sample size

This study will include the data from BSE 500 companies. The data has been collected from the
CMIE Prowess database, published annual report of the sample companies, minutes of the AGM
and EGM and other published sources for a period of six years (i.e. Financial Year 2009-10
through 2014-15). While collecting data for BSE 500 companies we excluded commercial banks
(43) as they have different mechanism of governance and companies with adequate information
(30) reducing the total number of companies included in the study equal to 427. The data has
been collected on 31st march 1st may 2015.

Research Design

The basic motive of the study is to evaluate the impact of various corporate governance variables
on the occurrence of related party transactions. So in order to analyze the impact of various
corporate governance variables (board size, percentage of outside directors, meetings attended by
directors, etc.) on related party transactions we will be using Binary Logit regression model to
identify whether the independent variables contribute towards the occurrence of related party
transactions. The binary logit model has been used to overcome the problem of
heteroskedasticity existing in dependent variable. So we have converted dependent variable in 1
and 0 which represent occurrence and non-occurrence of RPTs in firms.

p(RPT) = α + β1*BrdSze + β2*OutDrtrs + β3*BrdMtngs + β4*IDirBrdMtngs + β5*IDirAGM +

β6*CompMngr + β7*AdtrRem +ε

Where,

Dependent Variable
p(RPT) stands for the probability of occurrence of related party transactions which can be
considered as proxy for operational tunneling which can be calculated as sales and purchases
with related party transactions (Gordon et al. 2004 and Henry et al. 2007).

Independent Variables

Various researchers have researched on the identification of impact of various variables of


corporate governance on the occurrence of RPTs. But there are very few studies which have used
multiple corporate governance variables to identify the impact on occurrence of RPTs. While
going through the literature we are able to identify different variables which will be used in the
regression model to identify the impact of various elements of corporate governance on the
occurrence of related party transactions. The variables which have been identified and will be
used have been listed in table below with description, measures used and referred studies.

Measure
Variables description References
s
Fama and Jensen., 983; Nekhili and
BrdSze Board size Numbers Cheirf 2011; Samuel, et al., 2004,
Chin, et al., 2006
Percentage of Mark S Beasley., 1996; Gao and
OutDrtrs Percentage
outside directors Kling., 2008
Number of board Vafeas, 1999; Goodstein, et al.,
BrdMtngs meetings held in Numbers 1994; Ward 1991; Gao and Kling
financial year 2008
Percentage of
IDirBrdMt independent
Percentage
ngs directors present at Hsin I chou, et al., 2012; Core et.al.
board meeting 1999; Gao and King, 2007
Percentage of
independent
IDirAGM Percentage
directors attended
AGM/EAGM Moore 2002, Gao and King, 2007

Compensations of
top level managers Goodstein, et al., (1994), Gao and
CompMngr Percentage
as percentage of Kling 2008
net profit
Proportion of
auditor’s Gao and Kling 2008; Goodstein, et
AdtrRem Ratio
remuneration to al., (1994),
total audit fee

Research Framework

Since the date regarding related party transactions is available for very small number of
industries, we have used an average at industry level to include maximum number of companies
for each variable. Then we added the sales and purchases to related party transactions in order to
make one single consolidated dependent variable (Gordon et al. 2004 and Henry et al. 2007). The
data of all the years has been tabulated and analyzed using linear regression model to test the
hypothesis.

Results and Discussions


First of all we will start from descriptive statistics. The values of descriptive statistics has been
tabulated in table no. 1. The descriptive statistics for both dependent and independent variables
has been tabulated.

Table 1. Descriptive Statistics at Industry level


Std.
Particulars N Range Min Max Mean Deviation
BrdSze 270 7.00 8.00 15.00 11.4929 1.61374
OutDrtrs 270 6.83 1.50 8.33 5.1768 1.11388
BrdMtngs 270 5.57 2.50 8.07 5.9053 1.04138
IDirBrdMtngs 270 30.94 1.15 32.09 5.1459 4.83535
IDirAGM 270 5.33 1.00 6.33 3.1794 1.02626
CompMngr 270 47.88 1.70 49.58 18.7691 10.76614
AdtrRem 270 71.84 1.20 73.04 10.1526 13.24439
RPTs 270 37156.50 10.90 37167.40 4389.9382 8265.96012

Valid N (list wise) 270

While analyzing the descriptive statistics of various variables it has been found that there is a
huge variability among the variables. Audit fee with a minimum of 1.20 and maximum of 73.04
and a mean of 10.15 which is highly varying. While analyzing board size variability is relatively
lesser with a minimum of 8.00 and a maximum of 15.00 and a mean of 11.49 respectively.
Further number of outside directors have a minimum value of 1.50 and a maximum of 8.33 with
a mean of 5.17. For number of meetings held we have a minimum of 2.50 and maximum of 8.07
with a mean of 5.90. For number of independent directors present at each meting we have a
minimum of 1.15 and a maximum of 32.09 and a mean of 5.14. For number of independent
directors present at AGM/EGM we have a minimum of 1.00 and a maximum of 6.33 and a range
of 5.33. For compensation to board of directors we have a minimum of 1.70 and a maximum of
49.58 and a range of 47.88. For related party transactions we have a minimum value of 10.90 and
maximum of 37167.40 and a range of 37156.50

While analyzing the Binary logit model we first of all checked the assumptions in order to check
the suitability of model. The model was checked for auto-correlation and multicollinearity. The
autocorrelation was checked from the correlation table and it was found that there is no extreme
correlation (0.50) (La Porta et al., 1997). The multicollinearity was checked using variance
inflation factor (VIF). The VIF score was found to be 0.96. Since the model possessed
heteroskadesity due to dependent variable. In order to overcome the problem a logit model is
used where the dependent variable has been converted into 1 and 0 for the occurrence and non-
occurrence of RPTs. The table 2 gives us the final output obtained using Binary Logit model
using Eviews 6 for analysis.

Table 2. Output Sheet of Binary Logit


P(RPT)
Method: ML - Binary Logit (Quadratic hill climbing)
Date: 02/23/18 Time: 12:08
Sample: 1 270
Included observations: 269
Convergence achieved after 8 iterations
Covariance matrix computed using second derivatives
Coefficien
Variable t Std. Error z-Statistic Prob.

Constant -1.7943380 0.754921 -2.376855 0.01750


AdtrRem -0.0552480 0.026053 -2.120627 0.03400
CompMngr -0.0123390 0.005141 -2.400117 0.01520
IDirBrdMtngs 0.0680410 0.0340205 2.003211 0.04320
IDirAGM -0.4120650 0.141928 -2.903335 0.00370
BrdMtngs -0.2166820 0.118978 -1.821197 0.04860
OutDrtrs -0.0365460 0.092139 -0.396637 0.69160
BrdSze 0.1401580 0.077191 1.815735 0.04940

McFadden R-squared 0.6837280 Mean dependent var 0.51454


S.D. dependent var 0.4851450 S.E. of regression 0.25343
Akaike info criterion 0.8438880 Sum squared resid 8.14500
Schwarz criterion 1.7198880 Log likelihood -26.81650
Hannan-Quinn criter. 1.1995990 Restr. log likelihood -123.02420
LR statistic 194.4490000 Avg. log likelihood -0.15829
Prob(LR statistic) 0.0000000

Obs with Dep=0 102


Obs with Dep=1 168 Total obs 270

While analyzing the binary logit model we found that model fits in significantly with a
McFadden R-squared of 0.6837. Hesmer -Lameshow statistics value of 7.661(p=0.46) also adds
to the fact that goodness of fit of the model. Further the expected total predictability of the model
is 86.40%. Now finally coming to the coefficients table we found that there are certain variables
which are significant and there are other variables which are not significant. When we look at the
first variable which is board size. The results show that there is a significant positive impact of
board size on the occurrence of RPTs (p=0.023). Hence accepting our Hypothesis 1, which is
smaller size of board helps to reduce the occurrence of RPTs which is in concurrence with
previous studies (Yermack, 1996; Klien 2002). Evaluating the second variable which is presence
of outside directors on board we found that there is no significant impact (p=0.69) on the
occurrence of RPTs. Hence rejecting our Hypothesis 2 which is presence of outside directors
have a negative impact on the occurrence of RPTs contrary to what has been proposed by various
researchers when they have analyzed in various other stock exchanges (John et al., 2012; Gao
and Kling 2008). While analyzing the third variable which is number of board meetings, the
results are in concurrence with the results put forward by the various studies contrary (Moore
2002; Ward 1991). This variable shows a significant (p=0.048) negative relationship between the
frequency of board meetings and amount of RPTs. Hence accepting our Hypothesis 3, which is
higher number of board meetings are inversely related to occurrence of RPTs. There for we can
say that the more number of board meetings can be an outcome of inefficient governance of the
company. As Moore (2012), has stressed upon the optimal number of board meetings rather than
on numerous number of board meetings. While coming to our next variable which is presence of
outside directors in board meetings we found that significant negative impact (p=0.043) on the
occurrence of RPTs. Hence supporting our Hypothesis 4 which proposes that higher the
percentage of independent directors in board meetings less are the chances of occurrence of
fraud. Kling, (2008) also in his study proposed that higher the percentage of independent
directors less are the chances that decisions will be taken against the interest of shareholders.
Which further elaborates into less are the chances of occurrence of non-value adding RPTs. John
et.al. (2012) further in his study pressed on having more number of independent directors in
board meetings because it reduces accounting fraud occurring due to RPTs. Thus our results
further solidify the statement. Now coming to the next variable which is presence of independent
directors at AGM/EGM we found that there is a significant negative relationship between the
presence of independent directors at AGM/EGM on the occurrence of RPTs (p=0.003). Hence
accepting our Hypothesis 5 which is higher percentage of independent directors present at
AGM/EGM is inversely proportional to occurrence of RPTs. While coming to the variable 6
which is compensation to top level managers we found a significant negative relationship
between the higher compensation to top level managers and occurrence of RPTs (p=0.0152).
Hence supporting our Hypothesis 6 which is higher compensation of top level managers is
inversely proportional to occurrence of RPTs. Thus it means that more satisfied the top level
managers are with the compensation they are getting more are the chances that they will take
decisions in favor of the shareholders. The less satisfied managers would take biased decisions
which will be more for their personal benefit rather than the shareholders. Hall and Gao (1989)
also put forward that a small change in compensation leads to a higher change in the
shareholders’ value. Now coming to the final variable which is the amount of audit fee, we
found a significant negative relationship between the amount of audit fee and occurrence of
RPTs (p=0.034). Hence supporting our Hypothesis 7 which is higher percentage of auditor’s fee
to net profit lesser are chances of occurrence of related party transactions. Gao and King (2008)
are of the same opinion that higher the compensation higher will be the efforts that the auditors
will press to analyze the financial statements and less are the chances of occurrence of fraud
through RPTs.

Conclusion and Implications.


The main motive of the study is to analyze the impact of corporate governance performance on
the financial performance on the occurrence of RPTs. As previous studies have proposed this
study also proposes that there is a significant impact of corporate governance performance on the
occurrence of related party transactions. Previous studies as proposed by various researchers
have put forward only a single indicator or overall governance as the factor that effects RPTs. As
Core, et.al. (1999) proposed that corporate governance performance is significantly related with
higher agency problems and weaker financial performance, Beasley (1996) in his study has
shown a significant positive relationship between the percentage of independent directors and
occurrence of financial statement fraud. Golden et al. (2004) in their study proposed that the
RPTs which are complex in nature put forward very complex corporate governance challenges.
But this study has tried to identify the impact of various components of governance on the
occurrence of RPTs and further making the addition to the previous studies in specifying the
components which effect the occurrence of RPTs.

Their study provided us with valuable outcomes on, (i) descriptive statistics of various variables
at industry level, and (b) the impact of various variables on the occurrence of RPTs.

Analysis of descriptive statistics of various variables provided us with the information about the
minimum and maximum values. We found that there is a huge variability among the industry
values of the indicators. While analyzing the regression model to evaluate the impact of various
variables we found that all the independent variables are having a significant impact on the
occurrence of RPTs except for the V5 (presence of independent directors in AGM/EGM).

The implications of the study is many fold. First for policy makers it has provided the framework
on which we need to work on to enhance the efficiency of companies on the front of RPTs. It
will help the policy makers to guide their policies in proper direction in order to reduce the
frauds occurring due to the RPTs. Further for shareholders it will act as standard to decide which
companies are more prone to RPTs and also the malpractices that are associated with the RPTs.
For management it acts as a benchmark on which they should focus so that they can enhance the
performance of the company and further enhance the reputation of the company which will have
its impact on the share price of the company. So we can say that it will act as an enhancement
tool for all the stakeholders which will motivate them to increase the corporate governance
performance so that their performance in RPTs in enhanced.
Further study can be made where more than these variables can be taken to identify their
association with the occurrence of RPTs and a cross country analysis can be carried to further
solidify the inferences.

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