The interplay between related party transactions and earnings management: The role of audit quality

Moataz El-Helaly, Ifigenia Georgiou and Alan D. Lowe

Journal of International Accounting, Auditing and Taxation, 2018, vol. 32, issue C, 47-60

Abstract: Related Party Transactions (RPTs) are considered a potential tool for shareholder wealth expropriation as they offer opportunities to transfer wealth between the firm and related parties. While considerable evidence has reported on the negative consequences of RPTs (declines in shareholder wealth, lowered accounting quality and an increased likelihood of financial fraud), studies examining how RPTs may be used in earnings management are relatively rare. Consequently, we investigate whether RPTs are associated with real or accrual earnings management or used as a third alternative to manage reported earnings. Our study employs a sample of firms listed on the Athens Stock Exchange during the period between 2009 and 2014. Our results indicate that, on average, real earnings management and RPTs appear to be used as substitutes. However, additional tests show that this substitution is not significant if the firm is audited by one of the Big 4 auditors. Contrarily, we do not find any significant association between accrual earnings management and RPTs. Our evidence adds to understanding about the interplay between RPTs and earnings management and how audit quality can affect the relationships investigated.

Keywords: Related party transactions; Earnings management; Greece (search for similar items in EconPapers)
JEL-codes: K20 M41 M42 M48 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1061951818301708
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jiaata:v:32:y:2018:i:c:p:47-60

DOI: 10.1016/j.intaccaudtax.2018.07.003

Access Statistics for this article

Journal of International Accounting, Auditing and Taxation is currently edited by R. Larson

More articles in Journal of International Accounting, Auditing and Taxation from Elsevier
Bibliographic data for series maintained by Catherine Liu ().