Discriminatory Related Party Transactions
and Corporate Governance Reform:
Evidence from Bangladesh
A thesis submitted
in fulfilment of the requirement for the
degree of Doctor of Philosophy
Mohammad Tareq
MBA (University of Tsukuba, Japan)
MBA (University of Dhaka, Bangladesh)
BBA (Honours) (University of Dhaka, Bangladesh)
School of Accounting
RMIT University
2013
DECLARATION
I certify that except where due acknowledgement has been made, this thesis is sole done by
me and has not been submitted previously, in whole or in part, to qualify for any other
academic award. The content of this thesis is the result of research which has been carried out
since the official commencement date of my PhD programme.
Mohammad Tareq
Date: 24.11.2003
I
TABLE OF CONTENT
Page No.
LIST OF TABLES IV
LIST OF FIGURES VII
ACKNOWLEDGEMENT VIII
ABSTRACT IX
CHAPTER 1: INTRODUCTION
1.1 Introduction 1
1.2 Objective and Significance of the Study 4
1.3 Motivation of the Study 6
1.4 Thesis Structure 8
CHAPTER 2: LITERATURE REVIEW: REFORM AND DRPTS
2.1 Introduction 10
2.2 Corporate Governance Reform 11
2.2.1 Reform around the World
11
2.2.2 Reform 2006 in Bangladesh 15
2.2.3 Background of the Reform 2006 18
2.2.4 Decoupling in Reform Compliance 19
2.3 Discriminatory Related Party Transactions 24
2.3.1 Different DRPTs for Private Benefit 24
2.3.2 Other techniques for private benefits by controlling
shareholders 28
2.3.3 Conditions that Motivate DRPTs
30
Safeguards for DRPTs in Corporate Governance
Reform
2.3.5 Legal system and minority shareholders protection
from DRPTs
33
45
2.3.6 Legal enforcement and DRPTs 48
2.4 Measurement of DRPTs 52
2.4.1 Current DRPTs Measures 52
2.4.2 Limitation of the Current DRPTs Measurements 56
2.5 Conclusion 58
CHAPTER 3: THEORETICAL FRAMEWORK, RESEARCH QUESTIONS
AND MODEL SPECIFICATION
3.1 Theoretical Framework for the Research 59
3.2 Development of the Research Questions 66
3.3 Model Specification 69
II
CHAPTER 4: METHODOLOGY
4.1 Quantitative Methods 76
4.1.1Sample selection and source of quantitative data
76
4.1.2 Methods for Quantitative Data Analysis
77
4.1.2.1 Fixed versus Random Effect Estimation Method 77
4.1.2.2 Growth Curve Modelling 80
4.2 Qualitative Methodology 82
4.2.1 Interview Procedure 83
4.2.2 Sampling Method 84
4.2.3 Sample Size 84
4.3 Measurement of Variables 85
CHAPTER 5: A NEW MEASUREMENT FOR DRPTS
5.1 Introduction 87
5.2 The New DRPT Measurement Model
88
5.3 Methodology
of Empirically Testing the DRPT
Measurement Model
91
5.3.1 Data
Selection
91
5.3.2
Design
of Performance Tests for the New
and the existing DRPT Measurement
92
5.3.3 Measurement of Variables in the New DRPT M
odel
95
5.4 Results of the Model’s Performance Tests 97
5.4.1 Descriptive Statistics 97
5.4.2 Type 1 and Type 2 (power) Error Rates of the Measures 101
5.4.3 Further evidence: DRPTs Sensitivity on Firms M
arket
Value 105
5.5 Conclusion 109
CHAPTER 6: FINDINGS: EVALUATION OF THE REFORM 2006 FROM
DRPTS PERSPECTIVE
6.1 Introduction 111
6.2 Quantitative Analysis and Result 112
6.2.1 Descriptive Statistic 112
6.2.2 Correlation Analysis 117
6.2.3 Panel Data Regression Analysis 119
6.2.4 Growth Curve Modelling (GCM) Result 123
6.3 Qualitative Research Finding
125
6.3.1 Demographic Information on the Interview Participants 125
III
6.3.2 Independence of Independent Directors in Bangladesh 127
6.3.3 Audit Committee Competence 129
6.3.4 DRPTs Approval in Bangladeshi Companies 131
6.3.5 The Stance of the Board’s Chair 133
6.3.6 Disparity in Governance among Companies 134
6.3.7 Improvement in the effectiveness of safeguards 136
CHAPTER 7: CONCLUSION
7.1 Overview and Summary of Findings 139
7.2 Contribution to the Literature 141
7.3 Implications of the Findings 143
7.4 Limitations 145
7.5 Future research Direction 147
APPENDIX
148
REFERENCES 187