Related party transactions by directors/managers in public companies: a data-supported analysis

ABSTRACT Related party transactions (RPTs) are a primary way for corporate insiders to expropriate company value. Conventional wisdom in corporate law theory holds however that RPTs entered into by directors/managers (rather than controlling shareholders) are of lesser concern in both controlled and dispersedly-owned companies. This article challenges this conventional wisdom and puts forward various other theories under which RPTs entered into by directors/managers remain a significant concern in terms of value-diversion in both share-ownership structures. The article then presents hand-collected data of RPTs entered into by directors/managers who are not significant/controlling shareholders in companies listed on the prime standard of the German stock exchange. This dataset and its evaluation provide preliminary indications and exploratory evidence regarding the threat posed by RPTs entered into by abovementioned persons. Furthermore, up-to-date share-ownership data of those companies and several findings regarding disclosure practices are provided. The article closes with proposing a few regulatory improvements and implications.