Legal Analysis of Related Party Transactions in the BRICS Countries
https://doi.org/10.21684/2412-2343-2024-11-1-4-31
Abstract
Legal literature in the past has often debated whether concentrated corporate ownership (i.e. sizeable corporate conglomerates and corporate enterprises owned by business families or the government of a State) in a relatively close market leads to a high volume of related party transactions between the corporations in the respective market. The emerging economies attract substantial foreign investment due to the rapid growth of their markets and the presence of large publicly listed companies. Concentrated ownership structures in these countries tend to result in the expropriation of resources by controlling shareholders for their personal enrichment. There has been a high corporate failure rate due to related party transactions, despite the adoption of regulatory reforms that promote transparency, accountability, and fairness. Listed companies in the BRICS countries are marked by concentrated ownership structures controlled by either a family or the State. Although there are differences in ownership structures as well as indications of agency problems in the United States and the United Kingdom, the BRICS countries have adopted the same legal strategies to prevent unfair or abusive related party transactions in their respective countries, such as the appointment of independent directors, independent audit committees, CEO duality, and disclosure requirements. This study seeks to conduct cross-country comparative research to assess the ways in which the BRICS countries have regulated related party transactions. Each of the BRICS countries has adopted different monitoring mechanisms to prevent abusive related party transactions, which will be examined in the course of this research.
About the Author
К. Brahma
National Law University Odisha
India
India
Dr. Kaushiki Brahma (Cuttack, India) – Assistant Professor of Law
Kathajodi Campus, Sector – 13, CDA, Cuttack, 753015, Odisha
References
1. Abramov A. et al. State-Owned Enterprises in the Russian Market: Ownership Structure and their Role in the Economy, 3(1) Russian Journal of Economics 1 (2017). https://doi.org/10.1016/j.ruje.2017.02.001
2. Aldrighi D.M. & Neto R.M. Evidence on Capital Ownership and Voting Structures of Publicly Traded Companies in Brazil, 61(2) Brazilian School of Economics and Finance 129 (2007) (Nov. 29, 2020), available at http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0034
3. Berezinets I. et al. Dividends on Common and Preferred Shares: The Relationship with the Ownership Concentration in Russian Public Companies, 1(2) Journal of Economics and Social Development 48 (2015). https://hrcak.srce.hr/123667
4. Bradford W. et al. Cash Dividend Policy, Corporate Pyramids, and Ownership Structure: Evidence from China, 27 International Review of Economics & Finance 445 (2013).
5. Chernykh L. Ultimate Ownership and Control in Russia, 88 The Journal of Finance and Economics 169 (2008). https://doi.org/10.1016/j.jfineco.2007.05.005
6. Claessens S. & Yurtoglu B.B. Corporate Governance in Emerging Markets: A Survey, 15 Emerging Markets Review 1 (2013). 10.1016/j.ememar.2012.03.002
7. Claessens S. et al. The Separation of Ownership and Control in East Asian Corporations, 58 Journal of Finance & Economics 81 (2000). https://doi.org/10.1016/S0304-405X(00)00067-2
8. Crisóstomo V.С.& Brandão de Freitas I. The Ultimate Controlling Owner and Corporate Governance in Brazil, 19 Corporate Governance 120 (2019). https://doi.org/10.1108/CG-01-2018-0043
9. Deb S. & Dube I. Corporate Governance Disclosure for Complex Ownership Structure in India, 10(2) Indian Journal of Corporate Governance 143 (2017) (June 6, 2019), available at http://journals.sagepub.com/doi/10.1177/0974686217730937
10. Doidge С.et al. Private Benefits of Control, Ownership, and the Cross-Listing Decision, 64(1) The Journal of Finance 425 (2009). https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.2008.01438.x
11. Douma S. et al. Foreign and Domestic Ownership, Business Groups, and Firm Performance: Evidence from aLarge Emerging Market, 27(7) Strategic Management Journal 637 (2006) (Dec. 9, 2019), available at http://doi.wiley.com/10.1002/smj.535
12. Dyck A. & Zingales L. Private Benefits of Control: An International Comparison, 59(2) Journal of Finance 537 (2004). https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.2004.00642
13. Gibson M.S. Is Corporate Governance Ineffective in Emerging Markets?, 38(1) Journal of Financial and Quantitative Analalysis 231 (2003). https://doi.org/10.2307/4126762
14. Goel P. Implications of Corporate Governance on Financial Performance: An Analytical Review of Governance and Social Reporting Reforms in India, 3 Asian Journal of Sustainability & Social Responsibility (Article 4) (2018). https://doi.org/10.1186/s41180-018-0020-4
15. Guriev S. & Rachinsky A. The Role of Oligarchs in Russian Capitalism, 19 Journal of Economic Perspective 131 (2005).
16. Jiang G. et al. Tunneling through Intercorporate Loans: The China Experience, 98(1) Journal of Financial Economics 1 (2010). https://doi.org/10.1016/j.jfineco.2010.05.002
17. Jorgensen B.N. & Morley J. Are Related Party Transactions Red Flags?,34 Contemporary Accounting Research 929 (2017). https://doi.org/10.1111/1911-3846.12304
18. Khanna T. & Palepu K. Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups, 55 Journal of Finance 867 (2000) (May 26, 2020), available at http://doi.wiley.com/10.1111/0022-1082.00229
19. La Porta R. et al. Investor Protection and Corporate Governance, 58(1−2) Journal of Financial Economics 3 (2000). https://doi.org/10.1016/S0304-405X(00)00065-9
20. Leal Ricardo P.С. et al. One Decade of Evolution of Corporate Governance Practices in Brazil, SSRN Electronic Journal (2015) (Nov. 29, 2020), available at https://papers.ssrn.com/abstract=2611372
21. Marchini P.L. et al. Related Party Transactions, Corporate Governance and Earnings Management, 18(1) Corporate Governance 1124 (2018). https://doi.org/10.3390/risks9080146
22. Ntim C.G. Internal Corporate Governance Structures and Firm Financial Performance: Evidence from South African Listed Firms, PhD thesis, University of Glasgow (2009).
23. Rabelo F.M. & Vasconcelos F.С. Corporate Governance in Brazil, 37 Journal of Business Ethics 321 (2002). https://doi.org/10.1023/A:1015249300794
24. Rossouw G.J. et al. Corporate Governance in South Africa, 37 Journal of Business Ethics 289 (2002). https://doi.org/10.1023/A:1015205511601
25. Sarkar J. Ownership and Corporate Governance in Indian Firms, in Balasubramanium S. & Satwalekar D.M. (eds.). Corporate Governance: An Emerging Scenario 217 (2010) (May 20, 2019), available at https://www.nseindia.com/research/content/CG_9.pdf.
26. Shleifer A. & Vishny R.W. Large Shareholders and Corporate Control, 94(3) Journal of Political Economy 461 (1986). https://doi.org/10.1086/261385
27. Weinstein D.E. & Yafeh Y. On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan, 53(2) Journal of Finance 635 (1998). https://onlinelibrary.wiley.com/doi/full/10.1111/0022-1082.254893
28. Yan Leung Cheung et al. Tunneling and Propping Up: An Analysis of Related Party Transactions by Chinese Listed Companies, 17 Pacific-Basin Finance Journal 372 (2009). https://doi.org/10.1016/j.iref.2013.01.003
Review
For citations:
Brahma К. Legal Analysis of Related Party Transactions in the BRICS Countries. BRICS Law Journal. 2024;11(1):4-31. https://doi.org/10.21684/2412-2343-2024-11-1-4-31
Views:
838
Email this article 