Financial Distress Assessment Using Related Party Transactions

Q3 Business, Management and Accounting

Indian Journal of Corporate Governance Pub Date : 2022-06-01 DOI:10.1177/09746862221095293

Umesh S. Mahtani

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Abstract

In the past few years, several companies in India have filed for bankruptcy, after facing financial distress. Investigations showed that many of these companies, which were from the infrastructure sector, had high values of related party transactions (RPTs) before and during the financial crisis. In this study, RPTs towards sales, loans or payments are analysed for these companies to assess if they have a pattern that can be an indicator of ensuing financial distress. The article develops a model for assessing financial distress with a combination of RPTs and accounting variables. The sample uses financial data from 2010 to 2016 of 18 companies facing financial distress and combines with 15 financially stable companies from the same sector. The study shows that combining RPTs and accounting variables in a model provides higher accuracy in assessing financial distress when compared to a model with accounting variables only. The study recommends that such transactions by financially unstable companies should be monitored closely by lenders and investors, to ensure there is no diversion of funds during the distress period. There are few studies in India or globally on the pattern of RPTs made by financially distressed companies.

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利用关联方交易进行财务困境评估

在过去的几年里，印度有几家公司在面临财务困境后申请破产。调查显示，在这些企业中，有许多来自基础设施行业，在金融危机之前和金融危机期间，它们的关联方交易(RPTs)价值很高。在这项研究中，对这些公司的销售，贷款或付款的rpt进行了分析，以评估他们是否有一种模式，可以作为随后的财务困境的指标。本文开发了一个模型，以评估财务困境与RPTs和会计变量的组合。该样本使用了2010年至2016年18家面临财务困境的公司的财务数据，并结合了同一行业15家财务稳定的公司。研究表明，与仅使用会计变量的模型相比，将RPTs和会计变量结合在一个模型中，在评估财务困境方面具有更高的准确性。该研究建议，贷款人和投资者应密切监控财务状况不稳定的公司进行的此类交易，以确保在困难时期不会转移资金。在印度或全球范围内，关于陷入财务困境的公司的rpt模式的研究很少。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Indian Journal of Corporate Governance Business, Management and Accounting-Business and International Management

CiteScore

2.00

自引率

0.00%

发文量

期刊介绍： Indian Journal of Corporate Governance is a bi-annual refereed journal that provides a forum for discussions and exchanging views on a wide range of corporate governance issues ranging from board practices, independent directors, whistle blower policies and shareholder activism on one hand to media’s role in corporate governance, corporate social responsibility and sustainability reporting on the other. It comprises of research articles, concept papers, case studies and reports providing a blend of theory and practices of corporate governance globally to cater to the interests of practitioners, academics, researchers and policy makers.