Economic Consequences of Corporate Governance Disclosure

Related party transactions (RPTs) refer to a transfer of resources, services, or obligations between a reporting entity and a related party and usually offer insiders a way to expropriate wealth from other investors via self-dealing. Both the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) require detailed disclosure of material RPTs in annual reports and proxy statements. However, none of these regulators provided specific guidance on firms’ corporate governance related to ensuring that RPTs work in the best interest of the firm and its stakeholders. Investors were often kept in the dark on whether the firm … Read more