| Related party transaction is a form of a transaction between the enterprise and the market. It can promote the scale management, reduce the uncertainty in the transaction process, reduce transaction costs, and achieve the strategic objectives of the Group, but it also can violate the principle of fair market competition, transfer capital and profits between related parties, and damage the interests of the company and shareholders. Johnson et al (2000) proposed the concept of Tunneling to describe the occupation of the large shareholders to minority shareholders, and pointed out that related party transaction is a way of Tunneling. Unfair related party transaction is often used to adjust profits and manipulate earnings management by corporate insiders. Therefore, the governance of related party transactions has become a major problem in the capital market of the world. The dissertation discusses the governance of the RPTs from the perspective of government supervision. Systematic study is performed on the change of RPTs supervisory system, and empirical tests are made on the supervision effect.The article first searches for theoretical basis of government intervention in RPTs. Externality theory, information asymmetry theory, and law and finance theory can give us the answer. Then game theory tools are used to reveal the mutual influence of the government regulatory system and characteristics of related party transactions, with both static model and dynamic model adopted. The models verify that regulatory policy has an important impact on RPTs, and conversely, the behavior of enterprises has an impact on policy development. We comb the change of RPTs supervisory system from the aspect of legal regulation, accounting controls, and the securities regulatory, from which we can see that government supervisory system and characters of RPTs have mutual impacts on each other. So practice in China supports the game models in above theoretical analysis.A series of regulatory policies and regulations of RPTs have been issued since1997in China, and they focus on the definition of RPTs, price regulation, quantity regulation, information disclosure, corporate governance, illegal measures, etc. Empirical examination is made to test the impact of regulatory measures on RPTs. The results find that, RPTs are still preferences of listed company and its controlling shareholders in spite of the enhancement of supervision. Further empirical test with funds data in the RPTs shows that with the strengthening of the degree of supervision, the amount of lending and borrowing of funds from the listed companies to related parties are on the rise, but the lending growth rate is lower than the borrowing growth rate, net occupation of funds by all related parties showing a downward trend. The amount borrowed by controlling shareholders is on the rise, while the amount lent by controlling shareholders is declining, so net occupation of funds by controlling shareholders shows a downward trend. Therefore, RPTs can be inhibited by RPTs regulatory measures to some extent, especially those for purpose of tunneling by large shareholders.Post-mortem supervision on RPTs mainly refers to mechanism of punishment on violations of RPTs, which is an import aspect of supervision. Research based on illegal behaviors of listed companies in China during the year of2001-2010shows that, punishments are usually caused by violation in approval process, not timely disclosure, concealment of relationship, material omissions, false disclosure, occupation, illegal guarantee, etc. Most of the companies violate regulation in temporary bulletins. The SFC, the Stock Exchange, and the Ministry of Finance could all supervise violations of RPTs.Research on the market reaction to the violations of RPTs shows that, post-mortem supervision play a role to some extent. Investors react to four forms of punishment, which are the public reprimand, administrative penalty, internal reprimand, and banning the entry into the securities market. The reaction is particularly strong on the administrative penalty and banning the entry into the market. Significant omission, occupation by large shareholders and violation in approval process are strongly reacted to. Compared with other regulatory bodies, punishment by the SFC has a strong deterrent.Research is made on companies that violated Related-Party-Transaction regulation, and the results show that these companies have remarkable financial and corporate governance characteristics that distinguish from other companies. Companies characterized by abnormal period costs and sales revenue growth, worsening of asset quality, and the growth in debt, are more likely to be associated with trading violations. When we consider the impact of ownership concentration and equity balance on RPTs, we should not only look at the shareholding ratio, but also pay attention to the intricate relationship among the shareholders, especially those subject to the same actual controller. Good external governance environment can effectively inhibit the violation. External audit, whether a company is cross-listed, and competition facing it can all help regulators or investors distinguish the enterprises that tend to violate.There is a lot we can learn from other countries and regions about the supervision of the RPTs of listed companies. Some establish stringent listing censorship; some classify the companies according to importance principles; and some determine strict liability and establish an effective judicial remedy system. At last, the dissertation designs supervisory system of RPT of the Listed Company in China. Firstly, design concepts that balance costs and benefits should be adopted; secondly, the distribution of power and responsibility must be made among the regulatory bodies, especially accounting controls and securities regulation should be improved collaboratively; in addition, we must establish effective beforehand control and supervision mechanisms as well as afterwards accountability system and interest compensation mechanism. |
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