effect of related party transaction on firm value of listed industrial firms in Nigeria

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Abstract

This study investigates the effect of related-party transactions on the value of listed industrial firms in Nigeria between 2015 and 2024. Related-party transactions comprising loans and advances, borrowings, sales, asset disposals, and loan guarantees play a crucial role in corporate financing and operational efficiency, yet their impact on firm value is varied and context-dependent. Using a longitudinal research design, the study analyses panel data from thirteen industrial firms that remained continuously listed on the Nigerian Stock Exchange during the study period. The Fixed Effects panel regression model, complemented by diagnostic tests, is employed to account for firm-specific characteristics and isolate the effects of different types of related-party transactions on firm value, measured by Tobin’s Q. The results indicate that loans and advances, sales, and loan guarantees to related parties positively affect firm value, suggesting that well-managed intra-group transactions enhance liquidity, operational performance, and investor confidence. Conversely, borrowings from related parties and losses from the disposal of assets to related entities are negatively associated with firm value, highlighting the potential risks of overreliance and opportunistic behaviour. These findings underscore that the impact of related-party transactions is contingent on their type and governance. The study concludes that firms can increase shareholder 
wealth by strategically managing related-party transactions, promoting transparency, and strengthening internal controls. Regulators and policymakers are encouraged to monitor these transactions to prevent misuse and support practices that enhance firm performance. By providing empirical evidence from the Nigerian industrial sector, the study contributes to the understanding 
of how related-party transactions influence firm valuation.