Related Party Transactions in India: Are They Influenced by New Regulatory Framework?

Abstract

The unabating scandals and financial irregularities across the world seem to underline the related party transactions (RPTs) as one of the means corporates attempt to ‘manage’ earnings and divert resources as well. Misuse of RPTs raise questions on the corporate governance mechanisms within the company and the regulatory framework at large. Using the data from secondary sources, this paper attempts to critically analyze as how values and numbers of RPTs have changed over a period from 2010 through 2017 in view of provisions of the new Companies Act 2013 for related party transactions. As per new regime, all RPTs need to be pre-approved by audit committee as well as board of directors, responsible for any non-compliance and non-disclosure of necessary information in the financial statements. The analysis of data of 30 NIFTY companies about the values and number of RPTs, revenue and PBT indicates overall dip in CAGR when compared four years’ data pre- and post-2013 Act. However, application of paired t-test indicates statistically significant change in values, number of RPTs, post the Companies Act 2013. The results support the positive implications of new Act for RPTs in India.