The effect of Related Parties Transactions on the Firm Value: Moderating Role of Audit Committee

Document Type : Original Article

Authors

1 Assistant Prof., Department of Accounting, Aliabad Katoul branch, Islamic Azad University, Aliabad Katoul, Iran.

2 Associate Prof., Department of Finance, Faculty of Management, Alzahra University, Tehran, Iran.

3 PHD Candidate, Department of Accounting, Aliabad Katoul branch, Islamic Azad University,Aliabad Katoul, Iran.

4 PHD Candidate, Department of Accounting, Aliabad Katoul branch, Islamic Azad University, Aliabad Katoul, Iran.

Abstract

In recent financial scandals, related parties transactions (RPTs) have been as one of the major concerns, so that the targeted use of these transactions and lack of their disclosure or insufficient disclosure are some of the factors in the failure of the corporates. In RPTs, there is a risk that the related party may be favoured with terms that could harm the interests of the company’s shareholders. The purpose of this study was to investigate the effects of different types of related parties transactions on the firm value with the moderating role of the audit committee incorporates listed in Tehran Stock Exchange. The research statistical sample consists of 100 listed firms in the Tehran Stock Exchange in 6 years of 2013-2018. This research, based on the nature and content, is a descriptive/ correlational research. Using Panel data and multiple regression, the results of the research show that there is a negative relationship between RPTs and the firm value. The findings also show that there is a positive relationship between the audit committee and the firm value. Also, the findings show that different types of RPTs have a different effect on the firm value. The results also show that the audit committee does not affect the relationship between RPTs and the firm value. 

Keywords

References

Abbott, L. J., & Parker, S. (2000). Auditor selection and audit committee characteristics. Auditing: A Journal of Practice & Theory, 19(2), 47-66.
Agrawal, A., & Knoeber, C. R. (1996). Firm performance and mechanisms to control agency problems between managers and shareholders. Journal of financial and quantitative analysis, 31(3), 377-397.
Al-Dhamari, R. A., Al-Gamrh, B., Ismail, K. N. I. K., & Ismail, S. S. H. (2018). Related party transactions and audit fees: the role of the internal audit function. Journal of Management & Governance, 22(1), 187-212.
Al-Mamun, A., Yasser, Q. R., Rahman, M. A., Wickramasinghe, A., & Nathan, T. M. (2014). Relationship between audit committee characteristics, external auditors and economic value added (EVA) of public listed firms in Malaysia. Corporate Ownership & Control, 12(1), 899-910.
Amer, M., Ragab, A. A., & Shehata, S. E. (2014). Audit committee characteristics and firm performance: Evidence from Egyptian listed companies. Paper presented at the Proceedings of 6th Annual American Business Research Conference.
Arbab Soleimani, A., & Nafari, M. (2016). Audit Principles (Vol. 1). Tehran: Audit organisation.
Archambeault, D., & DeZoort, F. T. (2001). Auditor opinion shopping and the audit committee: An analysis of suspicious auditor switches. International Journal of Auditing, 5(1), 33-52.
Bansal, N., & Sharma, A. K. (2016). Audit committee, corporate governance and firm performance: Empirical evidence from India. International Journal of Economics and Finance, 8(3), 103.
Baumann, M., & Ratzinger-Sakel, N. V. (2017). Audit firm alumni in audit committees: An analysis of the time dependence of alumni effects on audit quality and audit fees. Available at SSRN 2937812.
Beasley, M. S., & Salterio, S. E. (2001). The relationship between board characteristics and voluntary improvements in audit committee composition and experience. Contemporary Accounting Research, 18(4), 539-570.
Bulu, G. (2006). Corporate governance system and its impact on the quality of profit. stock exchange, 52, 8-11.
Chang, S. J., & Hong, J. (2000). Economic performance of group-affiliated companies in Korea: Intragroup resource sharing and internal business transactions. Academy of Management journal, 43(3), 429-448.
Cheung, Y.-L., Qi, Y., Rau, P. R., & Stouraitis, A. (2009). Buy high, sell low: How listed firms price asset transfers in related party transactions. Journal of Banking & Finance, 33(5), 914-924.
Cheung, Y.-L., Rau, P. R., & Stouraitis, A. (2006). Tunnelling, propping, and expropriation: evidence from connected party transactions in Hong Kong. Journal of Financial Economics, 82(2), 343-386.
Chien, C.-Y., & Hsu, J. (2010). The role of corporate governance in related party transactions. Available at SSRN 1539808.
Coase, R. H. (2012). The firm, the market, and the law: University of Chicago Press.
Cohen, J. R., Gaynor, L. M., Krishnamoorthy, G., & Wright, A. M. (2011). The impact on auditor judgments of CEO influence on audit committee independence. Auditing: A Journal of Practice & Theory, 30(4), 129-147.
Darabi, R., & Davoud khani, M. (2015). The effects of RPTs on firm value. Audit and financial accounting researches, 7(28), 131-152.
Etemadi, H., & Salehi Rad, M. (2011). Investigating the role of the life-cycle in the relationship between rpts and the performance of the corporates listed in tehran stock exchange. Journal of Accounting Modern Theories, 2, 2-24.
Etemadi, H., & Shafa Khibari, N. (2011). The impact of free cash flows on profit management and the role of the audit committee. Financial Accounting, 3(10), 18-42.
Fakhari, H., Mohammadi, J., & Netaj Kurdi, M. H. (2015). Investigating the effect of audit committee features on profit management. Empirical Researches in Financial Accounting, 12(46), 123-146.
Forghandoost Haghighi, K., & Yohana, L. (1993). International accounting standards for the detection of rpts. scientific research journal for Accounting Reviews, 3, 93-101.
Golestani, M. (2013). Relationships between RPTs, ownership of institutional stockholders & non-executive members of the board of directors and corporate's market value. (Master), Tehran Azad University Central Branch, Tehran.
Gordon, E. A., & Henry, E. (2005). Related party transactions and earnings management. Available at SSRN 612234.
Gordon, E. A., Henry, E., & Palia, D. (2006). Related party transactions: associations with corporate governance and firm value. Paper presented at the EFA 2004 Maastricht Meeting Paper & AFA.
Habib, A., Muhammadi, A. H., & Jiang, H. (2017). Political connections and related party transactions: Evidence from Indonesia. The International Journal of Accounting, 52(1), 45-63.
Hwang, C.-Y., Zhang, S., & Zhu, Y. (2018). Related Party Transactions and Institutional Investors in Chinese Listed Companies. In Advances in Pacific Basin Business, Economics and Finance (pp. 1-25): Emerald Publishing Limited.
Jemison, D. B., & Oakley, R. A. (1983). Corporate governance in mutual insurance companies. Journal of Business Research, 11(4), 501-521.
Jian, M., & Wong, T. J. (2010). Propping through related party transactions. Review of Accounting Studies, 15(1), 70-105.
Kamyabi, Y., Boojmehrani, E., & Naderi Pelangi, F. (2014). Estimating error in profit prediction, rpts and the ratio of non-executive members of the board of directors. scientific research journal of Accounting Reviews, 43, 131-151.
Khalatbari Limaki, A., Arad, H., & Ebrahimiyan, M. T. (2012). Investigating the effect of RPTs on the performance of corporates listed in the tehran stock exchange national conference on investment & financial management accounting. Paper presented at the National conference on financial and investment management, Gorgan.
Khanna, T., & Palepu, K. (2000). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. The journal of finance, 55(2), 867-891.
Manaligod, M. G. T., & Del Rosario, R. (2012). Related party transactions. American International Journal of Contemporary Research, 2(5), 26-31.
Marchini, P. L., Mazza, T., & Medioli, A. (2018). The impact of related party transactions on earnings management: some insights from the Italian context. Journal of Management and Governance, 22(4), 981-1014.
Nekhili, M., & Cherif, M. (2011). Related parties transactions and firm's market value: the French case. Review of Accounting and Finance, 10(3), 291-315.
Pozzoli, M., & Venuti, M. (2014). Related party transactions and financial performance: Is there a correlation? Empirical evidence from Italian listed companies. Open Journal of Accounting, 3(01), 28.
Rahimian, N., Kazemi, H., & Mohammadi, H. (2012). The Effect of RPTs on the Performance of Corporates Listed in Tehran Stock Exchange with an Emphasis on the Role of Strategic Mechanisms. (Master), Raja University, Ghazvin.
Rahimian, N., & Tavakkolnia, I. (2011). The Impact of the Audit Committee on Internal Audit Activities. Quarterly Public Accountant, 2(15), 68-75.
Ryngaert, M. D., & Thomas, S. (2007). Related party transactions: Their origins and wealth effects. Available at SSRN 970689.
Sheri, S., & Hamidi, E. (2012). Identifying the motives of RPTs. Accounting Experimental Research, 2(6), 50-55.
Soleimani, G. R., & Moghaddasi, M. (2014). Role of internal controls, internal auditor and audit committee in improving corporate governance system. Accounting Research, 4(12), 63-77.
Srinivasan, P. (2013). An analysis of related-party transactions in India. IIM Bangalore Research Paper(402).
Stein, J. C. (1997). Internal capital markets and the competition for corporate resources. The journal of finance, 52(1), 111-133.
Weir, C., & Laing, D. (2001). Governance structures, director independence and corporate performance in the UK. European Business Review, 13(2), 86-95.
Weisbach, M. S. (1988). Outside directors and CEO turnover. Journal of Financial economics, 20, 431-460.
Williamson, O. E. (1975). Markets and hierarchies. New York, 2630.
Wong, R. M., Kim, J. B., & Lo, A. W. (2015). Are related‐party sales value‐adding or value‐destroying? Evidence from China. Journal of International Financial Management & Accounting, 26(1), 1-38.
Iranian Journal of Finance
Volume 3, Issue 2
2019
Pages 25-43

Files

History

  • Receive Date: 16 November 2019
  • Accept Date: 09 February 2020
  • First Publish Date: 22 February 2020

Share

How to cite

Statistics