Related Party Transactions, State Ownership, the Cost of Corporate Debt, and Corporate Tax Avoidance: Evidence from Vietnam

Abstract

This thesis consists of three papers examining determinants and implications of related party transactions (RPTs) in Vietnam, a transitional economy in South East Asia with features of concentrated state ownership and weak minority investor protection. Specifically, these papers describe RPTs and examine (i) the association between RPTs and state ownership, (ii) the association between the cost of corporate debt and RPTs, and the moderating role of state ownership on the association between the cost of debt and RPTs, and (iii) the association between corporate tax avoidance and RPTs, and the moderating role of state ownership on this potential association. The first paper describes the nature and extent of RPTs in Vietnamese listed firms and examines the association between RPTs and state ownership. The results from this paper demonstrate that related party transactions are prevalent in Vietnam. Findings show that the presence of state ownership is related to a lower extent of RPTs. However, among firms with state ownership, the extent of RPTs is positively associated with percentage of state ownership. The second paper reveals that the cost of debt is higher in firms having a higher level of RPTs, implying that RPTs are viewed as a potential risk to firms from the point of view of lenders. However, the presence of state ownership can reduce the effect of RPTs on the cost of debt. The third paper provides evidence that firms with RPTs demonstrate more tax avoidance than their counterparts without RPTs. Further, among firms with RPTs, firms with a higher extent of related net credit and related sales are found to exhibit even higher levels of tax avoidance. However, the association between tax avoidance and RPTs is moderated by the presence of state ownership. Finally, in firms with RPTs, the presence of state ownership reduces tax avoidance measured by effective tax rates.