RELATED PARTY TRANSACTIONS AND CORPORATE GOVERNANCE MECHANISMS EVIDENCE FROM LISTED FIRMS OF KARACHI STOCK EXCHANGE, PAKISTAN

Abstract

This study has investigated the impact of corporate governance mechanisms on the related party transactions of Pakistani firms. A sample of 160 such non-financial firms are used for the analysis that has reported related party transactions in their annual reports for the sample period of 2006 to 2012. The empirical results of different regression models suggested that board independence, blockholdings and institutional ownership play a vital role in the internal governance mechanism. While associated firm ownership, CEO-duality and managerial ownership act as an agents that expropriates minor shareholder’s wealth through related party transactions. Moreover, banking loan, multiple banks in relation and audit quality act as external governance agents and can mitigate the conflict of interest between the minor and major shareholders. These agents may lessen the expropriation through related party transactions by the major shareholders, there by securing the interest of minor shareholders.