Political Connections and Related-Party Transactions: Evidence from Iranian Firms

Abstract

The present study aims to investigate the association between political connections and related-party transactions for the firms listed on the Tehran Stock Exchange (TSE). Sample includes the 485 firm-year observations from companies listed on the Tehran Stock Exchange during the years 2013 to 2017 and research hypothesis was tested using multivariate regression model based on panel data.We find that political connections are negatively associated with related-party transactions. In other words, politically connected firms are less inclined to exercise opportunistic behaviours by related-party transactions in comparison to other firms. Moreover, additional analysis reveals that the negative relationship between political connections and related-party transactions is more pronounced in larger firms.Our findings not only extend the extant theoretical literature concerning the stock political economy in developing countries including emerging capital market of Iran, but also help investors, managers, capital market regulators, policy makers and accounting standard setters to make informed decisions.

Keywords

• political connections
• related-party transactions
• opportunistic behavior