Thesis Paper
BRAC University Journal, Vol. IV, No. 1, 2007, pp. 31-37
ASSOCIATION BETWEEN CORPORATE GOVERNANCE AND
RELATED PARTY TRANSACTIONS: A CASE STUDY OF
BANKING SECTOR OF BANGLADESH
Mohammad Zakir Hossain Sharkar
BRAC Business School
BRAC University, 66 Mohakhali C/A
Dhaka – 1212, Bangladesh and Md. Abdus Sobhan
Department of Accounting & Information Systems
University of Dhaka
Dhaka-1000, Bangladesh and Shahida Sultana
School of Business Studies
Southeast University, 64/B, Banani
Dhaka-1213, Bangladesh
ABSTRACT
This paper critically examines the relationship between corporate governance and related party transactions (RPTs). RPTs have become a global hot topic due to the link between undisclosed
RPTs and the collapse of some high profile companies. This paper analyses the current literature and establishes a relationship between corporate governance indicators and the number of RPTs by using Bangladesh banking sector data.
Key words: Corporate governance, Related Party Transactions, Bangladesh Banking Sector.
I. INTRODUCTION
The use of undisclosed related party transactions
(RPTs)1 can facilitate fraudulent financial reporting and misappropriation of assets. The recent failure of giant corporations in the USA again confirmed this. For example, Enron used special purpose entities controlled by its CFO to manipulate income and transfer cash, and Adelphia guaranteed related party debt and provided extensive loans to its executive (Kohlbeck and Mayhew 2004) [1]. As
1
“Related party transactions include transactions between (a) a parent company and its subsidiaries; (b) subsidiaries of a common parent; (c) an enterprise and trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of the enterprise’s management; (d) an enterprise and its principal owners, management and the members of their immediate families; and (e) affiliates” (FASB 57, 1982).
a
ASSOCIATION BETWEEN CORPORATE GOVERNANCE AND
RELATED PARTY TRANSACTIONS: A CASE STUDY OF
BANKING SECTOR OF BANGLADESH
Mohammad Zakir Hossain Sharkar
BRAC Business School
BRAC University, 66 Mohakhali C/A
Dhaka – 1212, Bangladesh and Md. Abdus Sobhan
Department of Accounting & Information Systems
University of Dhaka
Dhaka-1000, Bangladesh and Shahida Sultana
School of Business Studies
Southeast University, 64/B, Banani
Dhaka-1213, Bangladesh
ABSTRACT
This paper critically examines the relationship between corporate governance and related party transactions (RPTs). RPTs have become a global hot topic due to the link between undisclosed
RPTs and the collapse of some high profile companies. This paper analyses the current literature and establishes a relationship between corporate governance indicators and the number of RPTs by using Bangladesh banking sector data.
Key words: Corporate governance, Related Party Transactions, Bangladesh Banking Sector.
I. INTRODUCTION
The use of undisclosed related party transactions
(RPTs)1 can facilitate fraudulent financial reporting and misappropriation of assets. The recent failure of giant corporations in the USA again confirmed this. For example, Enron used special purpose entities controlled by its CFO to manipulate income and transfer cash, and Adelphia guaranteed related party debt and provided extensive loans to its executive (Kohlbeck and Mayhew 2004) [1]. As
1
“Related party transactions include transactions between (a) a parent company and its subsidiaries; (b) subsidiaries of a common parent; (c) an enterprise and trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of the enterprise’s management; (d) an enterprise and its principal owners, management and the members of their immediate families; and (e) affiliates” (FASB 57, 1982).
a