The Moderating Effects of Independent Directors’ Human Capital on the Relationship between Related Party Transactions and Firm Performance: Evidence from Malaysia

Hamezah Md Nor, Ku Nor Izah Ku Ismail

Abstract


ABSTRACT

The purpose of this study is to examine the effect of related party transactions (RPTs) on firm performance and whether this effect is moderated by independent directors’ (INEDs) presence and their human capital (i.e. functional and firm-specific knowledge). Based on a sample of 300 non-financial firms listed on Bursa Malaysia for 2013, this study found that RPTs in general, have a positive effect on firm performance and this effect varies according to the parties involved in RPTs. Specifically, this study found that firm performance is higher for RPTs involving subsidiaries, associates and joint ventures. The findings support the efficient transactions hypothesis that RPTs can create value to the firm. INEDs’ presence and INEDs’ functional and firm-specific knowledge are found not to have any moderating effects on the RPTs-firm performance relationship. Therefore, the agency, resource dependence and human capital theories that stress on the importance of INEDs as corporate monitor and advisor are not supported. This study, perhaps the first, explains the interaction effects of INEDs’ functional and firm-specific knowledge on RPTs-firm performance relationship.

Keywords: Related party transactions; independent directors; human capital; functional knowledge; firm-specific knowledge

ABSTRAK

Tujuan kajian ini adalah untuk mengkaji kesan urusniaga pihak berkaitan (UPB) ke atas prestasi firma dan sama ada kesan tersebut disederhanakan oleh kehadiran pengarah bebas (PB) dan modal insan mereka (iaitu pengetahuan fungsian dan pengetahun khusus berkaitan firma). Berdasarkan sampel berjumlah 300 buah syarikat bukan kewangan yang tersenarai di Bursa Malaysia dalam tahun 2013, kajian ini mendapati UPB secara amnya mempunyai kesan positif terhadap prestasi firma dan kesan ini berbeza bergantung kepada pihak yang terlibat dalam UPB. Secara khususnya, kajian ini mendapati prestasi firma lebih tinggi bagi UPB yang melibatkan anak syarikat, syarikat bersekutu dan usahasama. Penemuan kajian ini menyokong hipotesis urusniaga efisyen bahawa UPB dapat mencipta nilai kepada firma. Kehadiran PB serta pengetahuan fungsian dan khusus berkaitan firma yang dimiliki oleh PB didapati tidak memberi kesan pemoderat ke atas hubungan UPB-prestasi firma. Oleh yang demikian, teori agensi, pergantungan sumber dan modal insan yang menekankan kepentingan PB sebagai pemantau korporat dan penasihat tidak disokong. Kajian ini, mungkin yang pertama, menerangkan kesan interaksi pengetahuan fungsian dan khusus berkaitan firma oleh PB ke atas hubungan UPB-prestasi firma.

Kata kunci: Urusniaga pihak berkaitan; pengarah bebas; modal insan; pengetahuan fungsian; pengetahuan khusus berkaitan firma


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