The current status of related party disclosure in India: a longitudinal analysis

Financial reporting and disclosure are critical for corporate firms across countries as investors increasingly require credible information. From positive accounting perspective, disclosure of financial information provides a means of communication between the management and outside parties, including investors and regulators. There are regulations in almost all developed countries as well as emerging countries such as India and china to protect investors’ rights so that agency cost is minimized with the reduction of information asymmetry. Financial disclosure includes highly regulated financial statements, corporate governance‐related reporting and the disclosure of voluntary information by executives. Cr edibility of corporate disclosures now a days has become crucial due to recent high‐profile corporate scandals and fraud cases resulting from material misstatement in their financial statements. In most cases, they are closely linked to undisclosed and unreported ‘related party transactions’ (off balance sheet items for US companies) as evidenced in the cases of Enron, Adelphia and Tyco. Given such state of disclosure in developed economies having more regulation in place, concern arises about the status of financial reporting specially about related party(ies) by companies in emerging economies such as India. Hence the present study investigates the status of related party disclosure in an emerging economy, that is, India. The reason behind selecting India is due to it has opened its economy in 1991 (Arun and Turner) and welcoming foreign investments.