Related Party Transactions and Performance of Manufacturing Firms in Ghana

Abstract

The paper ascertains the relationship between related party transactions (RPTs) and performance of manufacturing companies in Ghana. Firms on the Ghana Stock Exchange (GSE) were sampled and secondary data was gathered from their annual financial reports spanning from 2013 to 2017. Considering the outcome of the Hausman test, random effects estimator was used in the regression analysis testing the link between RPTs and firm performance. The results of the study indicate that there exists a significantly positive relationship between the main variables, i.e. related party transactions and firm performance. This provides evidence that the magnitude of related party transactions that manufacturing firms carry out can enhance their performance. The policy implication here is that, regulatory institutions and key decision makers may have to look at the sector differently when it comes to rules to govern related party transactions as compared to say the banking sector.  All the control variables used in this study turned out to be statistically and negatively related to firm’s performance. Leverage negatively affecting firm’s performance is possibly due to high interest rates, something which is common in emerging economies like Ghana. The negative influence of ownership concentration is an indication that when the concentration levels of firm ownership increases, it may affect good practices negatively thereby affecting performance in a likewise manner. Lastly, the size of firms being negative and statistically significant supports the school of thought that, the larger the firm, the more the inefficiencies leading to diseconomies of scale; hence, there is the need to improve upon efficiency of large manufacturing firms in Ghana.