The influence of profitability on related party revenues

In recent decades, related party transactions (RPTs) have played a prime role in major corporate scandals, obliging regulators to strengthen the rules with new bans and costly requirements on companies. The aim of the regulatory process is to guarantee the proper use of RPTs, avoiding their incorrect use and abuse. This study contributes to the literature on RPTs, refining previous studies on this topic and providing evidence to justify the attention of lawmakers, leading to increasingly costly and mandatory regulation. Focusing on the revenues made with RPs, we investigate the relationship between variations in profitability and the intensity variations of RPRs in income statements. Results show that the intensity of RPRs increases with a decrease in company profitability. This inverse relation underlines the potential risk of these transactions.