Related party transactions
3 important questions on Related party transactions
What is a self-dealing transaction? TQ
p 145
Self-dealing transaction: takes place when an influential manager or controlling shareholder transacts with the company in favour of itself, not the company
vb: loan by shareholder from company's assets
What is insider trading? TQ
Insider trading: when trading in the company's shares on the basis of yet undisclosed price-sensitive corporate information, third parties appropriate part of the company's information by selling or buying before it reflects in the stock prices.
What are some of the reasons that related-party transactions are indeed permitted? TQ
p 146To make business possible in certain situations:
- Prohibiting managerial compensation and trading in the company's shares would be absurd
- Prohibitions won't always solve anything
- Small related-party transactions are not harmful
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