Do related party transactions affect the relationship between political connections and firm value? Evidence from Egypt

Abstract

Abstract This paper aims to (i) investigate the impact of political connections (PC) and related party transactions (RPTs) on the firm value (FV), and (ii) test the moderating effect of RPTs on such relationship, while controlling for the firms’ corporate governance mechanisms. Based on 315 observations from publicly listed firms in Egypt, our results reveal that (i) there is a positive relationship between PC and the FV, (ii) there is a negative relationship between RPTs and the FV, and (iii) the existing of RPTs as a moderating variable enhances the impact of the politically connected companies on the FV. The findings suggest that the Egyptian firms are much affected by the politically connected board of directors or owners, and this significantly exists when associated with related party transactions, despite that, the corporate governance practices could mitigate such effects.

Keywords

• Related party transactions
• Political connections
• Corporate governance
• Firm value
• EGX
• Egypt