Related Party Transactions and its Relationship with Effective or Opportunistic Behavior of Earnings Management

اقتصاد پولی مالی

Article 5, Volume 25, Issue 15, May 2018, Pages 105-134

Document Type: پژوهشی

DOI: 10.22067/pm.v25i16.64300

Authors

Mostafa Ghannad; Mohammad Reza Abbaszadeh^* ; Behzad Kardan

Ferdowsi University of Mashhad

Abstract

Related party transaction is a phenomenon that while they attribute recent financial scandals are known to be related to it,it can also lead to the loss of shareholders’ wealth and managers start earnings management to cover transfer of wealth. Therefore, the aim of this study is to investigate the relationship between related party transactions and earnings management in listed companies in Tehran Stock Exchange. To achieve this goal, in addition to the examination of the relationship between earnings management and related party transactions in all of the companies, this relationship has also been tested for the group of companies with an efficient and opportunistic earnings management behavior. In order to test the research hypotheses, financial data of 164 companies during 2007-2015 were used, and data analysis was done using multivariate regression model and panel data. The results showed a positive and significant relationship between earnings management and related party transactions. In addition, a significant negative relationship was seen between related party transactions and opportunistic earnings management, which show the efficiency of the related party transactions. In addition, the findings showed a positive and significant relationship between related party transactions and efficient earnings management, which approved the efficiency of related party transactions in Tehran Stock Exchange.
 
Results andDiscussion
Three hypotheses were proposed for this research, and all the three hypotheses fit the same model. In all three models, the dependent variable is discretionary accruals and the independent variable is the related party transaction. The difference between the three models is that, for the entire sample group companies, the group of companies with the opportunistic behavior of the earnings management and the group of companies that have an effective earnings management behavior are fitted.
Conclusions
The purpose of this study was to discover the relationship between Related Party Transactions with affiliated entities and earnings management in a group of opportunistic and efficient companies in order to create managerial motives for dealing with affiliates to achieve specific goals. In this study, using financial information of listed companies in Tehran Stock Exchange, there was a positive and significant relationship between Related Party Transactions with affiliated entities and Earnings Management.
Moreover, this study examines the relationship between Related Party Transactions with affiliated entities and Earnings Management in the group of companies with the behavior of effective and opportunistic Earnings Management. The results indicate a negative and significant relationship between these two variables in the group of companies with opportunistic behavior of earnings management. In addition, the results indicate a positive and significant relationship between Related Party Transactions with affiliated entities and Earnings Management in companies with good Earnings Management behavior. Therefore, these results are based on the strengthening of the theory of
 
 
 

Keywords

Related Party Transactions; Behavior of Earnings Management; Efficient Earnings Management; Opportunistic Earnings Management; Discretionary Accruals

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