Related parties transactions and firm's market value: the French case

Abstract

Purpose The purpose of this article is to study the impact of the related parties' transactions (RPTs) on firm value, and to identify the ownership and governance characteristics of companies that engage in this type of transactions. Design/methodology/approach The paper uses 3SLS simultaneous model carried out on a sample of 85 companies listed on the Paris Stock Exchange during the period 2002‐2005. Findings The results show that RPTs are mainly influenced by the voting rights held by the main shareholder, the size of the board of directors, the degree of independence enjoyed by the audit committee and the board of directors, the choice of external auditor, the debt ratio and the fact of being listed in the USA. Mainly the transactions carried out directly with the main shareholders, directors and/or managers that have a negative influence on firm value. Research limitations/implications In future studies, it will be interesting to test the impact of the level of expertise as well as the level of qualification in the field of accounting and finance of the members of the French audit committees on the frequency of RPTs. Originality/value The current research complements prior studies on the RPT by showing that the frequency of RPTs can be damaging to companies and can destroy their market value.

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