By Sonakshi Agrawal, Hariom Manchiraju, Sumeet Rajput
Accounting Theory and Practice 2025 | December 2025
https://doi.org/10.1016/j.accoth.2024.100005
Accounting Theory and Practice, 2025
This study examines the impact of Related Party Transactions (RPTs) on credit risk assessments by credit rating agencies (CRAs). Using a comprehensive dataset and a fixed effects regression model, we find that CRAs differentiate between financing and operating RPTs, generally assigning lower credit ratings to firms with financing RPTs while awarding higher ratings to those with operating RPTs. Further analysis reveals that CRAs distinguish between equity and debt-related financing RPTs, with firms engaging in debt-related RPTs receiving lower ratings, likely due to the potential risk that these transactions create by facilitating cash tunneling and strategic defaults. Conversely, equity-related RPTs do not significantly impact ratings. Additionally, CRAs assess RPTs within group-affiliated firms and material RPTs of firm with superior governance structures favorably. CRAs favorably view material RPTs by group firms in financial distress suggesting these RPTs reduce default risk. Overall, this study demonstrates that CRAs integrate RPT information into credit risk assessments and thus contributes to the understanding of CRA rating processes and the role of RPTs in credit risk assessments.
Prof. Hariom Manchiraju is an Associate Professor of Accounting at the Indian School of Business (ISB). His research examines the role of accounting information in capital markets, the economic consequences of regulation, ESG reporting, executive compensation, and corporate governance. His work has been published in leading academic journals, including Journal of Accounting Research, Journal of Accounting and Economics, The Accounting Review, Contemporary Accounting Research, and Review of Accounting Studies. He is also one of the founding editors of Accounting Theory and Practice, a research journal focused on India and published by Elsevier.
At ISB, he teaches core courses in Financial Accounting and the Financial Statement Analysis elective in the PGP program. In the FPM program (PhD equivalent), he teaches a course titled Capital Market Research in Accounting. His doctoral students have been placed at leading business schools, including the Indian Institute of Management Ahmedabad.
Prof. Manchiraju holds a PhD and MBA from the State University of New York at Buffalo, a Master of Financial Management (MFM) from Sri Sathya Sai Institute of Higher Learning, and a Bachelor’s degree in Commerce from Osmania University.
