Does market competition foster related party transactions? Evidence from emerging market

We examine the impact of market competition on related party transactions (RPTs). Using a sample of 12,794 firm-year observations from listed Indian firms, we find that market competition has a positive impact on the usage of RPTs, and this effect is greater in firms that have a low level of monitoring and profitability. We find that firms in a competitive environment engage in a greater amount of business RPTs in comparison to non-business RPTs. Business group firms in competitive industries use RPTs significantly more than standalone firms. We also find that in a competitive market, RPTs are positively related to firm value.