Related Party Transactions (RPTs) are common in corporate activities in emerging economies, particularly among firms within business groups and those with concentrated ownership structures. In the capital-intensive industrial sector characterized by complex supply chains, RPTs may improve operational efficiency and optimize internal resource allocation. Concurrently, they may create agency conflicts, reduce transparency, and increase financial risk. From a creditor's perspective, the attributes of these transactions considerably affect risk evaluation and, consequently, debt pricing decisions. This study examines the impact of related party transactions (RPTs) on the cost of debt for publicly listed manufacturing firms in India, employing panel data from the CMIE Prowess database, which includes Nifty 500 businesses from 2016 to 2025. The magnitude of related party transactions (RPTs) is evaluated about total assets and is thereafter classified into operational RPTs (sales and purchases) and financial RPTs (loans, advances, and guarantees). The cost of debt is denoted by the effective interest rate, calculated by dividing interest expenses by total borrowings. The study controls for firm-specific characteristics such as leverage, profitability, growth, asset tangibility, and company size, employing panel regression techniques. The findings demonstrate that financial related party transactions (RPTs) have a positive and statistically significant impact on the cost of debt, indicating that creditors see them as increasing risk. In contrast, operational RPTs have no significant association with borrowing costs. The research highlights the need of disaggregating related party transactions (RPTs) to understand debt pricing and offers insights into creditor behaviour and corporate governance in developing countries.

Keywords

Related Party Transactions, Cost of Debt, Financial RPT, Corporate Governance, Manufacturing Firms.