TY - JOUR
T1 - The interplay between related party transactions and earnings management
T2 - The role of audit quality
AU - El-Helaly, Moataz
AU - Georgiou, Ifigenia
AU - Lowe, Alan D.
N1 - Funding Information:
The helpful comments of Robert Larson (the editor) and the anonymous reviewers are greatly acknowledged. We thank Reem El-Sherif for her excellent research assistance. Moataz El-Helaly acknowledges that significant parts of this research were conducted when he was a PhD student at Aston Business School, UK and a Visiting Assistant Professor of Accounting at the American University in Cairo, Egypt and gratefully acknowledges the financial contribution of the School of Business, American University in Cairo. Special thanks to Dr. Nizar Becheikh, Associate Dean for Graduate Studies and Research at that time.
Publisher Copyright:
© 2018 Elsevier Inc.
PY - 2018/9
Y1 - 2018/9
N2 - 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.
AB - 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.
KW - Earnings management
KW - Greece
KW - Related party transactions
UR - http://www.scopus.com/inward/record.url?scp=85050871419&partnerID=8YFLogxK
U2 - 10.1016/j.intaccaudtax.2018.07.003
DO - 10.1016/j.intaccaudtax.2018.07.003
M3 - Article
AN - SCOPUS:85050871419
SN - 1061-9518
VL - 32
SP - 47
EP - 60
JO - Journal of International Accounting, Auditing and Taxation
JF - Journal of International Accounting, Auditing and Taxation
ER -