A Study on the Relationship between Business Groups, Related Party Transactions and Asset Misappropriation in Taiwan
Date Issued
2008
Date
2008
Author(s)
Liu, Ting-Chun
Abstract
In recent years, there have been so many accounting scandals, especially the cases involved asset misappropriation, hurting people’s confidence of the safety of the security exchange market in Taiwan. It seems that the importance of establishing the mechanism to prevent asset misappropriation from happening is getting higher. This study uses data on the two main Taiwan news databases during 2000-2007, searching out the stories related to the management leading asset misappropriation, and then examining the relationship between the two characteristics in Taiwan market- Business groups and frequent related party transactions-and the happening of business asset misappropriation. Under univariate basis, this study yields the following findings: On average, compared with the control companies, companies with asset misappropriation are more likely to be a group affiliated business, have higher level of the deviation of controlling shareholder’s control form ownership, and higher level of account receivables from related parties. As to multivariate Logit analysis, this study yields two major findings. First, this study finds that when a company belongs to a business group, it has higher possibility to occur asset misappropriation. Second, the occurrence of business asset misappropriation is positively related to higher level of account receivables from related parties. The above results suggests that there exist management and agency problem in business group, and company would use specific way-lending money to related parties-to tunnel out it’s assets.
Subjects
Fraud
Asset misappropriation
Business groups
Related party transactions
Controlling shareholders
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