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Related party transactions and firms financial performance

Asian A. Umobong

Abstract


The study investigated related party transactions and firm’s financial performance using Secondary data obtained from Nigeria stock Exchange. We tried to determine whether RPT is used by firms to manipulate and bloat Return on Asset, Return on Equity and Earnings per share of manufacturing firms. RPT was subjected to Hausmann test for selection of appropriate model and regressed against performance variables. Test of causality was conducted to determine whether causal relationship exist amongst variables of study. Result showed RPT has no significant effects on ROA and EPS and not used to manipulate ROA and EPS. Conversely, RPT has significant relationship with ROE without any causal relationship which may be attributable to the shareholding structure of the firms. The study confirmed positive relationship of RPT with ROA, ROE and EPS implying that increases in RPT increases performance and in contrast decreases in RPT decreases performance. Based on findings, we concluded that firms are currently not using RPT to bloat earnings but probably use it to enhance its effectiveness in collaboration with efficient transaction hypothesis. However, positive relationship espoused by the study indicates its potential of being used for manipulative motive.



http://dx.doi.org/10.4314/afrrev.v11i1.5
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