Buy high, sell low: How listed firms price asset transfers in related party transactions

Stephen Y L Cheung; Yuehua Qi; P. Raghavendra Rau; Aristotelis Stouraitis

doi:10.1016/j.jbankfin.2008.10.002

Buy high, sell low: How listed firms price asset transfers in related party transactions

Stephen Y L Cheung, Yuehua Qi, P. Raghavendra Rau, Aristotelis Stouraitis^*

^*Corresponding author for this work

Research output: Contribution to journal › Journal article › peer-review

96 Citations (Scopus)

Abstract

We examine a sample of 254 related party and arms' length acquisitions and sales of assets in Hong Kong during 1998-2000. Our analysis shows that publicly listed firms enter deals with related parties at unfavourable prices compared to similar arms' length deals. Firms acquire assets from related parties by paying a higher price compared to similar arms' length deals. In contrast, when they sell assets to related parties, they receive a lower price than in similar arms' length deals. With the exception of audit committees, corporate governance characteristics have limited impact on transaction prices. Firms with audit committees on their boards pay lower prices to related parties for acquisitions and receive higher prices from related parties from divestments.

Original language	English
Pages (from-to)	914-924
Number of pages	11
Journal	Journal of Banking and Finance
Volume	33
Issue number	5
DOIs	https://doi.org/10.1016/j.jbankfin.2008.10.002
Publication status	Published - May 2009

Scopus Subject Areas

Finance
Economics and Econometrics

User-Defined Keywords

Expropriation
International corporate governance
Related party transactions
Tunneling

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10.1016/j.jbankfin.2008.10.002

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title = "Buy high, sell low: How listed firms price asset transfers in related party transactions",

abstract = "We examine a sample of 254 related party and arms' length acquisitions and sales of assets in Hong Kong during 1998-2000. Our analysis shows that publicly listed firms enter deals with related parties at unfavourable prices compared to similar arms' length deals. Firms acquire assets from related parties by paying a higher price compared to similar arms' length deals. In contrast, when they sell assets to related parties, they receive a lower price than in similar arms' length deals. With the exception of audit committees, corporate governance characteristics have limited impact on transaction prices. Firms with audit committees on their boards pay lower prices to related parties for acquisitions and receive higher prices from related parties from divestments.",

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AB - We examine a sample of 254 related party and arms' length acquisitions and sales of assets in Hong Kong during 1998-2000. Our analysis shows that publicly listed firms enter deals with related parties at unfavourable prices compared to similar arms' length deals. Firms acquire assets from related parties by paying a higher price compared to similar arms' length deals. In contrast, when they sell assets to related parties, they receive a lower price than in similar arms' length deals. With the exception of audit committees, corporate governance characteristics have limited impact on transaction prices. Firms with audit committees on their boards pay lower prices to related parties for acquisitions and receive higher prices from related parties from divestments.

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Buy high, sell low: How listed firms price asset transfers in related party transactions

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