Understanding Related Party Transactions in Indian Companies

This book introduces the core concepts of Related Party Transactions (RPTs), examines the dominant features of the Indian business environment that make RPTs common, and traces the evolving legal framework for regulating RPTs in the country. It also contextualizes the discussion by drawing on notable RPT scandals and diverse regulatory approaches across the globe, and highlights tensions in the theoretical literature. Related party transactions stand among the most crucial corporate governance challenges in India, where business groups, family firms, and concentrated ownership dominate. Building on an overview as well as a detailed descriptive analysis of RPTs undertaken by the top 500 listed companies in India (excluding financial, real estate, and utility companies) over 17 years, this book examines the prevalence of RPTs in the country, how this has changed over time, and how the incidence and intensity of RPTs vary across industries, related party types, and transaction types. Beyond the basics and overview, this book contributes to contemporary RPT literature through original empirical findings on three crucial research questions: (A) What are the drivers of RPTs? Do these drivers suggest efficiency or abuse? Do companies belonging to business groups and families exhibit higher levels of RPTs? Do corporate governance factors and auditors constrain RPTs; (B) How do the RPTs affect the financial performance of firms, and how does the market react to them; (C) Do companies with high levels of RPTs also show higher levels of earnings management (accrual-based and real)? Finally, this book synthesizes these findings and discusses the implications and future directions for research, practice, and regulation. The book is an essential resource for academicians and research scholars studying corporate governance, business groups, family firms, and earnings management. It is a valuable reference for directors, investors, financial professionals, auditors, regulators, and the public seeking to understand the realities of RPT in India.