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Related Party Transactions and Firm Value in the Business Groups in the Indonesia Stock Exchange

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  • Martua Eliakim Tambunan
  • Hermanto Siregar
  • Adler Haymans Manurung
  • Dominicus Savio Priyarsono

Abstract

Related party transactions are the most common corporate actions occurring in the business groups in the Indonesia Stock Exchange that can influence firm value. The market capitalization proportion of the business groups is more than 50 percent of all the market capitalization of the issuers listed in the Indonesia Stock Exchange. This study aimed to analyze the determinants of related party transactions affecting the values of the companies in the business groups in the Indonesia Stock Exchange. The determinants were the types of related party transactions, company’s size, debt to equity ratio, and period of crisis. This study used panel data with quarterly time period from 2006 to 2013. Samples were determined by purposive sampling that focused on the typology of the companies, namely the companies in the three business groups representing the three layers of market capitalization. In total were 704 observations. The result showed that related party transactions of sales and incomes as well as purchases and expenses significantly have positive effect on firm value. Debt to equity ratio insignificantly has positive effect on firm value. The related party transactions of loans, receivables, asset tunneling, company’s size and period of crisis significantly have negative effect on firm value.JEL classification numbers: G11, G32Keywords: related party transactions, firm value, business groups, Indonesia, propping and tunneling

Suggested Citation

  • Martua Eliakim Tambunan & Hermanto Siregar & Adler Haymans Manurung & Dominicus Savio Priyarsono, 2017. "Related Party Transactions and Firm Value in the Business Groups in the Indonesia Stock Exchange," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(3), pages 1-1.
    • Handle: RePEc:spt:apfiba:v:7:y:2017:i:3:f:7_3_1
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    Cited by:

    1. Trisninik Ratih Wulandari & Doddy Setiawan & Ari Kuncara Widagdo, 2022. "Related Party Transactions and Firm Value in Indonesia: Opportunistic vs. Efficient Transactions," Risks, MDPI, vol. 10(11), pages 1-11, November.
    2. Tariq H. Ismail & Mohamed El-Deeb & Yasser Tawfik Halim, 2022. "Do related party transactions affect the relationship between political connections and firm value? Evidence from Egypt," Future Business Journal, Springer, vol. 8(1), pages 1-12, December.
    3. Utku ŞENDURUR & Bekir GEREKAN, 2023. "Related Parties Transactions and Firm Value: Intermediate Effect of Sustainability Performance," Sosyoekonomi Journal, Sosyoekonomi Society, issue 31(56).

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    More about this item

    Keywords

    related party transactions; firm value; business groups; indonesia; propping and tunneling;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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