Related Party Transactions and Firm Value: Evidence
from Property Markets in Hong Kong, Malaysia
and Singapore
David H. Downs1 & Joseph T. L. Ooi2 &
Woei-Chyuan Wong3 & S. E. Ong2

Abstract

This paper offers new evidence as to how RPTs can be value enhancing for
minority shareholders. In doing so, we address an ongoing theoretical tension in the
related party transaction (RPT) literature by focusing on real estate investment trusts
(REITs) in Asia. The empirical evidence is mixed in the corporate finance literature on
whether RPTs create or destroy firm value. On average, REITs in our sample engaged
in RPTs amounting to 5.4 % of total assets, annually, between 2003 and 2010. This is
not a trivial amount and is nearly double the 2.8 % RPT rate for U.S. industrial firms.
We identify three main channels for REIT RPTs: real estate asset acquisitions from
related parties (57.4 %), income earned from related parties (22.2 %) and management
fees paid to related parties (14.8 %). The identification strategy we employ relies on
two distinct methodologies when examining RPTs and firm value: a multivariate
regression approach and, secondly, an exogenous wealth effects test for RPT announcements. Overall, the results suggest that REIT managers and sponsors do not
expropriate wealth from their minority shareholders through RPTs. We find evidence
that an ad hoc acquisitions pipeline from sponsor to REIT generally drives the value