Alleviating Related Party Transactions Through Corporate Social Responsibility

ABSTRACT Using a sample of Chinese firms from 2010 to 2021, we examine whether corporate social responsibility (CSR) influences firms' propensity to engage in related‐party transactions (RPTs)—an intriguing yet underexplored relationship. We find robust evidence that CSR‐oriented firms are less likely to permit RPTs. Our results further indicate that RPTs conducted by more CSR‐oriented firms are viewed favourably by the market and are associated with higher subsequent market value. In contrast, RPTs among other firms correlate with reduced market value, suggesting that CSR‐oriented firms only allow efficient RPTs to meet legitimate needs and align with strategic value‐maximisation objectives. Additional analysis reveals that ownership structure and firm‐level governance quality moderate the CSR‐RPTs relationship. These findings remain robust to alternative RPT measures and are not driven by endogeneity concerns.