Related Party Transactions Research Articles

The Influence of Related Party Transactions on Earnings Management in Indonesian Food and Beverage Sub-Sector Companies: Ownership Concentration as a Moderating Variable

This research tests how transactions among related parties influence the management of earnings, considering ownership concentration as a moderating factor. The research specifically targets businesses inside of the food and beverage sub- division that are registered on the Indonesia Stock Exchange (IDX) during the phase by 2016 to 2022. Earnings management, a tactic frequently utilized by corporate executives to manipulate reported financial outcomes, is associated by both accrual-based and real earnings management techniques. This research emphasizes how transactions by related parties can enable accrual earnings management, especially in circumstances defined by significant ownership concentration, where major stockholders might leverage their influence to the disadvantage of smaller group stockholders. Through moderated regression analysis, this research investigates the extent to which ownership concentration can enhance or reduce the influence of related party transactions on earnings management. The outcomes reveal that a high concentration of ownership intensifies earnings manipulation, particularly in less regulated settings such as Indonesia, where conflicts of interest among majority and smaller group stockholders are prevalent. These outcomes add to the expanding literary works on corporate governance and offer valuable empirical insights for stakeholders concerning the monitoring of related party transactions.

Related party transactions and financial distress: role of governance and audit attributes

Purpose This study aims to investigate the relationship between related party transactions (RPTs), specifically sales and purchases, and financial distress. It also explores the moderating role of various corporate governance mechanisms and audit-firm characteristics in this relationship. Design/methodology/approach This study spans the period before and during the COVID-19 pandemic and uses a logistic regression model focusing on an eight-year noncylindrical panel data set, covering a sample of Omani listed companies from 2014 to 2021. Findings The empirical findings reveal a contrasting relationship between RPT sales and financial distress: a significant negative relationship in the postpandemic period, and a positive relationship in the prepandemic period. Conversely, RPT purchases exhibit a consistently significant positive relationship across all periods. The presence of a Big Four audit-firm and audit delay are notable moderating variables associated with audit-firm attributes. Additionally, the board’s review of RPT transactions, size, meetings and independence are significant moderator variables pertaining to corporate governance. Research limitations/implications This study provides empirical evidence to inform regulators of the efficiency and opportunistic aspects of RPTs in relation to financial distress. The study’s findings offer valuable guidance to managers by suggesting ways to reinforce corporate governance practices and strengthen audit mechanisms to counteract the negative consequences of RPTs. Originality/value To the best of the author’s knowledge, this study is the first to explore the direct relationship between both RPT sales and purchases and financial distress while also examining the moderating effect of corporate governance and audit attributes. This comprehensive approach distinguishes itself from its unique contributions to the field.

Economic Consequences of AS 18: Related-Party Transactions with Principals versus Nonprincipals

ABSTRACT In 2014, the PCAOB adopted a new auditing standard, AS 18 Related Parties, with the intention of enhancing auditors’ performance in auditing related-party transactions (RPTs). Using hand-collected data, we find significant reductions in both firms’ restatement risk and their engagement in RPTs following the AS 18 adoption. Such reductions are especially pronounced for smaller firms and firms having RPTs with principals, in which related persons in the counterparty of RPTs are the primary beneficiaries, such as CEOs, board chairs, or primary shareholders. We also find that smaller firms having RPTs with principals tend to pay higher audit fees post-AS 18. Our study responds to the PCAOB’s call to assess the economic consequences of AS 18. The findings suggest that AS 18 is associated with improved audit quality and reductions in auditees’ opportunistic RPT activities. Data Availability: Data are available from public sources as cited in the article and from the authors upon request. JEL Classifications: M10; M40; M41; M42; M48.

Does Convergence with International Standards on Auditing Improve Audit Quality?

ABSTRACT Many countries have converged their domestic auditing standards with International Standards on Auditing (ISA). This study provides global empirical evidence on first-order determinants of audit quality by examining whether and how convergence affects audit quality through utilizing data on 41 jurisdictions and using a staggered difference-in-differences approach. We find that ISA convergence leads to higher audit quality on average. The positive effect is stronger for clients of domestic audit firms, in jurisdictions with stronger enforcement, and when the ISA convergence level is higher. Insights from textual features suggest that changes in principle-orientation, comparability, readability, and size (or length) of auditing standards are positively related to audit quality. Exploratory analyses of textual content using machine learning reveal that the emphases of ISA on going-concern assessment and legal compliance, fraud risk assessment and internal control evaluation, and related-party transactions and subsequent events contribute to enhanced audit quality. JEL Classifications: M40; M42; M48.

Do sanctions imposed on peers have a deterrence effect on related-party transactions of observing firms? Evidence from Chinese listed firms

How to effectively discipline related-party transactions has garnered widespread attention from both academia and practice. While extensive literature has examined the factors influencing related-party transactions, it has overlooked the impact of sanctions imposed on peers on the related-party transactions of other firms. Using panel data covering Chinese listed firms from 2002 to 2021, we find that sanctions imposed on peers have a deterrence effect on observing firms. Increasing the certainty or severity of sanctions significantly reduces related-party transactions in observing firms. Mechanism tests demonstrate that media coverage, industry competition, and social trust strengthen this deterrence effect. Further analysis suggests the deterrence effect of sanctions is primarily driven by indirect reputation effects. Additionally, we find that deterrence effect exists in both state-owned enterprises (SOEs) and non-SOEs. Our study sheds light on the efficacy of enforcement in the Chinese capital market and offers important implications for enhancing regulatory efficiency in emerging economies.

Buying inferior to selling: Explore the impact of transaction direction on the effects of related-party transactions

Throughout, the effects of related-party transactions (RPTs) have been a hot topic in financial markets and corporate governance research. This paper analyzes the theoretical foundation of the effects of RPTs and constructs a new indicator, the quasi-profit margin, to assess the effects of RPTs by studying their impact on the quasi-profit margin. Based on the information asymmetry between transaction parties and the information screening theory, the paper proposes the buying inferior to selling theory, systematically explaining the impact of transaction direction on the effects of RPTs. Subsequently, using panel data from Chinese A-share listed companies from 2016 to 2021, the paper constructs fixed-effects models and conducts empirical studies from both exogenous and endogenous perspectives, employing estimation methods such as high dimensional fixed effects method, two-stage least squares method, and three-stage least squares method. The research indicates that RPTs of Chinese A-share listed companies generally exhibit a tunneling effect, and the transaction direction significantly affects the effects of RPTs. The higher the proportion of RPTs conducted as sellers to the total RPTs, the smaller the overall tunneling effect of the RPTs. This study has implications for reducing the tunneling risk of RPTs and improving corporate governance for listed companies, as well as providing some references for financial regulatory authorities to identify and rectify illegal RPTs.

The Effect of External Audit Quality, Related Party Transactions, Political Connec-tions, Esg Performance and Independent Assurance on Sustainability Reports on Firm Value

This research is based on the importance of companies knowing the factors that can affect the value of the firm in accordance with the development of the times so that the company can continue to survive in success in the long term. This study combines factors related to the company's non-financial performance, including sustainability performance such as ESG performance and the use of independent assurance in sustainability reports as well as other non-financial performance such as the quality of external audits, related party transactions, and political connections to determine the influence of these factors on the firm's value. The method used in this study is a panel data regression analysis method using e-views 9 with a sample of companies in the energy and basic materials sectors listed on the Indonesia Stock Exchange (IDX) in 2021-2023. The results of this study show that the quality of external audits, related party transactions, political connections, environmental performance (ESG_Environment), social performance to employees (ESG_Social Employees) and the use of independent assurance in sustainability reports have no effect on firm value while, social performance to the community (ESG_Social Community) and governance performance (ESG_Governance) have a positive effect on firm value.

Impact and Significance of Accounting Standards in Enhancing Financial Transparency within Pakistan’s Textile Industry

The investigation assesses the extent to which accounting standards foster financial openness in Pakistan's textile sector, which makes a substantial economic contribution to the country through employment, exports, and income generation. Accounting standards guarantee financial reporting's comparability, consistency, and dependability, which are critical for stakeholders' decision-making, including lenders, investors, and regulatory agencies. Implementing local standards established by the Institute of Chartered Accountants of Pakistan and International Financial Reporting Standards improves accountability and transparency in Pakistan's textile sector. Even with their advantages, the complicated regulatory environment, shifting market conditions, and disparities in compliance among various firms make it difficult to adopt these standards. This evaluation looks at how following these guidelines affects the transparency of financial statements, lowers fraud rates, and lessens the chance of financial misreporting. It also discusses the sector-specific issues that Pakistan's textile industry faces, such as differences in revenue recognition, inventory value, and related party transaction disclosure that can skew evaluations of financial health. The evaluation emphasizes the role of sound accounting procedures in promoting investor trust and, importantly, in streamlining regulatory supervision, which should give the audience confidence in the oversight of the industry. Additionally, it assesses current measures to enhance compliance, such as ICAP's attempts to harmonize national standards with IFRS and government incentives for better corporate governance in the sector. Standardized accounting procedures enable sustainable growth in Pakistan's textile sector and improve the nation's standing internationally by fostering a transparent financial environment.

Role and Impact of Private Equity in Mergers and Acquisitions of Publicly Listed Companies

This article discusses the role and impact of private equity funds in the mergers and acquisitions of listed companies. It introduces the historical development of private equity funds, the domestic and international M&A background, as well as the research purpose and significance. The section exploring the role of private equity in the mergers and acquisitions of listed companies discusses the methods of private equity intervention and financial support, along with the relationships and decision-making processes involving other investors. Additionally, the article discusses the impact of M&A funds on market activity and evaluates market price fluctuations. The article delves into the discussion and prevention of risks, covering positive effects and collaborative advantages, regulatory challenges in new models, negative effects and risks, as well as challenges and cooling trends in the models. Future regulatory efforts should focus on strengthening the scrutiny and disclosure of related-party transactions, consolidated financial statements, and announcement disclosures.

TRANSFER PRICING IN INDONESIA: LITERATURE ANALYSIS

This research aims to present studies regarding transfer pricing or related party transactions in Indonesia. This research explains that 53 articles comprised 33 from 15 accredited national journals (Sinta 2) and 20 from 18 accredited international journals (Scopus). The articles used are from 2002 until September 2023. This research categorized articles into four parts: publication trends, existing research (themes, topics), causes and effects, and future research agenda regarding transfer pricing or related party transactions in Indonesia. Based on the articles on transfer pricing in Indonesia, this research concludes that transfer pricing or related party transactions can be categorized into 2. There are financial variables and corporate governance variables. Previous studies have inconsistent results because of the difference in transfer pricing indicators used.

The Effect of Related Party Transactions, Tax Planning, And Leverage Moderated By Independent Commissioners On Earnings Management

The Effect of Related Party Transactions, Tax Planning, And Leverage Moderated By Independent Commissioners On Earnings Management

An Enhanced Credit Risk Evaluation by Incorporating Related Party Transaction in Blockchain Firms of China

Related party transactions (RPTs) can serve as channels for the spread of credit risk events among blockchain firms. However, current credit risk-assessment models typically only consider a firm’s individual characteristics, overlooking the impact of related parties in the blockchain. We suggest incorporating RPT network analysis to improve credit risk evaluation. Our approach begins by representing an RPT network using a weighted adjacency matrix. We then apply DANE, a deep network embedding algorithm, to generate condensed vector representations of the firms within the network. These representations are subsequently used as inputs for credit risk-evaluation models to predict the default distance. Following this, we employ SHAP (Shapley Additive Explanations) to analyze how the network information contributes to the prediction. Lastly, this study demonstrates the enhancing effect of using DANE-based integrated features in credit risk assessment.

Related party transactions and tax avoidance: does government ownership play a role?

Purpose This study aims to examine the association between related-party transactions (RPT) and tax avoidance. The study further investigates whether government ownership improves scrutiny of tax aggressiveness activities among Taiwanese group companies. Design/methodology/approach The authors used 16,061 firm-year observations derived from the Taiwan Economic Journal Database (TEJ) from 2005 to 2021. The authors applied GLS fixed-effect regression. Additional tests, such as a difference-in-difference examination, propensity score matching (PSM) analysis and other tests were performed to obtain more robust results. Findings The results show different consequences between eliminated and non-eliminated RPT toward tax avoidance. RPT enhances tax benefits aligned with the efficient contracting hypothesis. Under varying degrees of government control, this paper empirically reveals that government ownership has a role in mitigating tax avoidance. This implies that government control improves corporate governance by balancing opportunistic and efficiency-based tax avoidance. Practical implications This paper provides substantial practical implications since using the strategy of reducing taxes through RPT will result in greater tax savings at the business group level. Therefore, RPT is beneficial for enhancing business efficiency. Furthermore, government control increases corporate governance quality, which could lead to balancing tax aggressiveness activity. Originality/value Using a unique setting for RPT reporting in Taiwan, this paper divides RPT into eliminated and non-eliminated RPT. The findings offer significant insight for policymakers, investors and managers regarding the utilization of RPT to enhance efficiency in business groups. Additionally, this paper highlights the role of government control in preserving a harmonious balance in tax planning practices.

Majority-of-the-minority shareholder votes and investment efficiency

In an environment where concentrated share ownership is the norm, we ask whether Majority-of-the-Minority (MoM) votes curb controlling shareholder overreach and investment inefficiency. We consider MoM votes on controller-based related party transactions in China. Such votes give minority parties potential veto power. We report strong association between shareholder disapprovals on controller-based investment related MoM proposals and the underlying entity's investment plans. This association is robust to a battery of tests, including assessment of pre-vote consultation between minority and controlling shareholders and an exogenous regulatory shock. We also report increased likelihood of informal securities enforcements in the year following MoM shareholder disapproval.

The Moderation Effect of Islamic Corporate Governance on Fraud Financial Statement Detection Using Fraud Hexagon

Purpose: Given that Islamic corporate governance serves as a moderating variable, this study aims to examine the impact of the hexagon theory on fraudulent financial statements.Method: This study employed a quantitative methodology and garnered secondary data on Islamic commercial banks in Southeast Asia. Purposive sampling was carried out to collect data from 18 companies during five years (2017–2022), yielding 90 observations. The data analysis method employed Warp-PLS software version 8.0 and partial least square structural equation modeling (PLS-SEM).Findings: Study results demonstrate that financial stability significantly worsens the performance of fraudulent financial statements. Related party transactions, external auditors, director changes, C.E.O. education, company existence, and political connections did not affect governance, moderate the significant positive influence of financial stability, related party transactions, company existence, and political connections on fraudulent financial statements. Meanwhile, good oversight, external auditors, director changes, and C.E.O. education did not moderate the impact of misleading financial statements.Originality/Value: This research contributites significantly to the Islamic banking management. The Islamic corporate governance mechanism forms the process and structure of the entity’s supervisory, monitoring and advisory functions. The presentation of financial statements is carried out in an accountable and transparent manner based on Sharia principles, which can reduce the practice of financial statement fraud, so stakeholders will be more confident in investing.

Related Party Transactions and Audit Fees: Indian Evidence

SUMMARY We examine the effect of related party transactions (RPTs) on audit fees in Indian public companies. RPTs can be used to manipulate financial statements or to transfer wealth between firms and their related parties, and the presence of RPTs increases audit risk. RPTs are relatively more important in India than in advanced economies, so we examine the association between RPTs and audit fees in the Indian setting. We find that audit fees increase by 3.58 percent moving from the first to third quartile of related party sales (RPSs). The association between RPSs and audit fees becomes prominent after the enactment of The Companies Act of 2013. Discussions with audit partners suggest that The Companies Act of 2013 led to increases in audit effort. Our results provide information regarding the corporate governance environment in India and highlight the importance of separately analyzing different types of RPTs. Data Availability: Data will be made available upon request after completion of related projects. JEL Classifications: G34; M41; M42.

Directors’ and Officers’ Liability Insurance and Related-Party Transactions: Evidence from China

ABSTRACT Using the data set of Chinese A-share listed enterprises, this paper discusses the impact of directors’ and officers’ liability insurance (hereinafter referred to as D&O insurance) on related-party transactions. We empirically find that D&O insurance positively associates with related-party transactions, and this conclusion still holds after robustness tests such as the DID approach, Heckman two-stage model, and propensity score matching. Mechanism analysis shows that D&O insurance promotes the occurrence of related-party transactions by improving the level of enterprise risk-taking. This positive correlation is more significant in enterprises audited by non-Big Four, non-state-owned enterprises, and samples with strong board independence. This paper not only complements the literature on the actual impact of D&O insurance from the perspective of operating activities, but also provides useful reference for regulating the governance of related-party transactions.

Capital market opening and related party transactions: quasi-natural experimental evidence from China

ABSTRACT This study takes a quasi-natural experiment from China, the ‘Shanghai/Shenzhen – Hong Kong Stock Connect policy’, as the research background to study the relationship between capital market opening and related-party transactions (RPTs) in listed companies. Based on DID analysis and subsequent robustness tests, capital market opening policies significantly inhibit related-party transaction behaviours in listed companies. Further analysis reveals that the mechanism behind this effect lies in its ability to enhance information transparency and improve financial performance of listed companies. The study also finds that this mechanism is primarily driven by abnormal related-party transactions, financing-related transactions, and large-scale transactions. Moreover, these policies have a more pronounced effect on privately-owned companies and those with weaker external auditing supervision. This paper enriches the research on the consequences of capital market opening and expands the study of factors influencing corporate related-party transaction behaviours, providing empirical evidence for further deepening capital market opening and corporate governance in emerging market countries.

Related-party transactions and CEO foreign experience: Evidence from China

Chinese CEOs with foreign experience tend to engage less in related-party transactions (RPTs). This result holds across various analyses, including firm-fixed effects model estimations, matching on firm and CEO characteristics, additional controls, and instrumental variable regressions. The effect of CEO foreign experience is pronounced for non-state-controlled and non–politically connected firms. The effect is weaker for firms with independent boards and foreign shareholders. Moreover, CEOs exposed to more developed institutional environments tend to reduce RPTs more. Collectively, our findings indicate that CEO foreign experience can enhance corporate governance in emerging markets.

Pengaruh Transaksi Pihak Berelasi dan Intellectual Capital Terhadap Nilai Perusahaan Dengan Financial Performance Sebagai Moderasi

This research analyzes how related party transactions and intellectual capital influence firm value and how a company's financial health (financial performance) moderates its relationship with related parties (related party transactions) and intangible assets (intellectual capital) in determining the overall value of the firm. A total of 105 financial companies from 2020 to 2022 were the population in this study. Through the purposive sampling method, 27 financial companies were used as research samples. The data analysis technique used is Partial Least Square (PLS) using special SmartPLS 4 software. The results of this research reveal that transactions with related parties do not have a direct impact on firm value. On the other hand, strong intellectual capital makes a positive contribution to firm value. Meanwhile, this research found that the company's financial health (financial performance) was unable to moderate the relationship between related party transactions and intellectual capital on firm value.