The Current Status of Related Party Disclosure in India: A Longitudinal Analysis

Abstract

Purpose - This study investigates the status of related party disclosure in an emerging economy, that is, India. The reason behind concentrating on India is due to its opening of the economy in 1991 to attract foreign investment. Hence, it is significant that investors are provided with credible information. The accounting value of 'secrecy' underlying India and the voluntary nature of detailed reporting about related parties in this country further motivated the present study. Methodology/Approach - The research method includes a content analysis of the 'related party disclosure' section of annual reports of a sample of Indian companies for the financial years 2002-2006. Findings - Indian companies disclosed more than the required minimum level of related party disclosure as required in the Indian accounting standard. No association between related party disclosure with market capitalization, industry affiliation and foreign listing was found for the year 2006. However, when the scores of all the five years 2002-2006 were considered manufacturing and automotive companies disclosed more about related parties than diversified, service and technology. Research Limitations The limitations of our findings rests upon the fact that we have not examined the effect of factors such as the composition of management of each company and the presence of Indians/ Non-Indians in management. Originality/Value of the Paper - Most studies exploring disclosure practices are directed towards developed countries. The disclosure practices in developing countries is an under researched area. This paper contributes towards the existing literature by taking the case of an emerging economy, that is, India.