Related Party Transactions from the Perspective of Public Shareholders

Year 2025, Volume: 12 Issue: 1, 86 - 106, 31.03.2025

Ali Özer , Serkan Unal , Kerim Çepni

https://doi.org/10.30798/makuiibf.1440930

Abstract

Transactions between related parties, particularly those involving controlling shareholders, may pose a risk of financial detriment to minority shareholders while simultaneously providing a mechanism for controlling shareholders to accumulate profits in a manner that may be considered inequitable. This research seeks to examine the effects of related party transactions on shareholders from four distinct analytical angles, to enhance the investment decision-making process for investors. The study explores the relationship between related party transactions and several financial indicators of companies listed on Borsa Istanbul, including the free float ratio, stock price performance, dividend payout ratio, and Tobin’s Q. The research utilized financial data from 339 companies listed on Borsa Istanbul, resulting in 1478 instances within an unbalanced panel data set. Methodologically, both fixed effects and random effects regression analyses were conducted. The analysis shows a positive relationship between debts owed to related parties and the free float ratio, as well as Tobin's Q ratio. Furthermore, a positive relationship is identified between receivables from related parties and the free float ratio, while a negative relationship is observed between receivables from related parties and Tobin's Q ratio. These findings corroborate the existence of agency costs and conflicts of interest between majority shareholders and minority shareholders. Despite the statistical significance of the findings, it is pertinent to note that the explanatory efficacy of the equations utilized is relatively modest.

Keywords

Related Party Transactions, Agency Costs, Tunneling

Ethical Statement

Ethics Committee approval was not required for this study. The authors declare that the study was conducted in accordance with research and publication ethics. The authors confirm that no part of the study was generated, either wholly or in part, using Artificial Intelligence (AI) tools. The authors declare that there are no financial conflicts of interest involving any institution, organization, or individual associated with this article. Additionally, there are no conflicts of interest among the authors. The authors affirm that they contributed equally to all aspects of the research.

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