Skip to content

NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance

While assessing corporate governance of a listed Indian company, an analyst finds that the promoter family's private firm regularly sells goods to the listed company at prices above market rates. The most direct governance concern is:

The main concern is related party transactions. When a promoter's private firm sells to the listed company at above-market prices, value moves from the listed company to the promoters, harming minority shareholders, so analysts examine such dealings closely.

  1. AInefficient working capital cycle
  2. BRelated party transactions that may transfer value away from minority shareholdersCorrect
  3. CExcessive dividend payout
  4. DHigh institutional shareholding

Explanation

Sales by a promoter-owned entity to the listed company at above-market prices are related party transactions that can siphon value from minority shareholders. Dividend payout and institutional holding are not concerns here, and working capital is not the issue described.

Did you get it right without looking?

One question tells you little. A timed set on Company Analysis - Business and Governance shows your real accuracy, how long you take and where you lose marks.

Practise Company Analysis - Business and GovernanceFree diagnostic mock

More Company Analysis - Business and Governance questions