Related party and corporate governance: the role of business group affiliation

Related party transactions, which have an important place in corporate governance, occur between firms and their related parties. Related party, which can be an owner, a director, a subsidiary, or a partner, is the body that influences the processes of transacting parties. One of the main parties in the framework of transactions is the subsidiaries of firms. Subsidiaries have an important role in the functioning and governance of parent firms. Moreover, in emerging economies, the affiliation of parent firms to a business group may also affect the relationships between subsidiaries, which are considered related parties, and corporate governance. However, in relevant literature, whether these subsidiaries as a related party affect the corporate governance of the parent firms and whether affiliation with a business group affects the relation between related parties and corporate governance has not sufficiently been addressed. The aim of this paper is to investigate the influence of related party in the form of subsidiaries on the corporate governance of the parent firm and the moderating role of group affiliation in the relation between related party and corporate governance. In this study, data obtained from the 2021 reports of 381 firms on the Public Disclosure Platform is used. The results of the regression analysis indicate that related party has a positive impact on corporate governance. However, affiliation negatively moderates the association between related party and corporate governance. This research seeks to advance the prior work on corporate governance by considering the relations between a related party, group affiliation and corporate governance in an emerging economy.