The Relation of Related Party Transactions To Disclosure Quality, Earnings Management and Profitability

Abstract

Related party transaction is one of the factors devaluating the capital market. Although all related party transactions aren’t opportunistic, but it is believed that they significantly affect risk and are very important to investors. This research is aimed to identify the relation of related party transactions to disclosure quality, earning management, and profitability. Based on the representation problem, related party transactions, due to the owner's lack of control and the conflict of interest, can lower disclosure quality and stakeholders’ wealth and thus result in earning management. Therefore this study uses related party transactions as an independent variable and discretionary accruals as the dependant variable. The sample includes 112 firms listed in Tehran Stock Exchange over the period from 2012 to 2016. To test the hypotheses, multiple linear regression model has been used. Research findings show a negative significant relation, a positive significant relation and no significant relation of related party transactions to disclosure quality, earnings management and profitability, respectively.

Keywords

• related party transactions
• disclosure quality
• Earnings Management
• profitability