اثر متقابل بین معاملات با اشخاص وابسته و مدیریت درآمد: نقش کیفیت حسابرسی The Interplay between Related Party Transactions and Earnings Management: The role of Audit Quality

1. Introduction Considerable analysis of the nature and objectives of related party transactions (RPTs)2 has been published in the last decade. Numerous studies documented that RPTs are a potential means to expropriate outside shareholders through self-dealing (Ryngaert and Thomas, 2012); provide direct opportunities for related parties to extract resources from minority shareholders (Djankov et al., 2008), and have used as an alternative tool to manage earnings (Chen et al., 2011). Another view is that RPTs are used for legitimate commercial purposes (Gordon et al., 2004) and, in such circumstances, are not conducted to mask wealth extraction from minority shareholders (Gordon et al., 2007). However, it can still be argued that the presence of RPTs are a signal that the firm’s insiders are open to self-trading and could be suggestive of the presence of other opportunistic behaviors, such as earnings management (Kohlbeck and Mayhew, 2017). Academic research has been interested, over an extended period, in earnings management by companies (Chen et al., 2011). Prior studies have focused on earnings management through accruals-based approaches (Leuz et al., 2003; Dechow and Dichev 2002) or using real activities to create manipulation opportunities (Roychowdhury, 2006). However, , few prior studies have addressed the possible use of transactions with related parties as an enabler of earnings management (Thomas et al., 2004; Aharony et al., 2010; Jian and Wong, 2010). We note also that this stream of research draws inferences on the relationship between RPTs and earnings management from firms in Asian economies, and therefore, may not necessarily be applicable to other markets due to differences in institutional factors3 . An important question, which we believe is not addressed is whether firms conducting RPTs for earnings management purposes, manage earnings through RPTs or through accrual-based and real activities manipulation. We aim to investigate whether or not RPTs are associated with accrual-based and real earnings management. This will contribute to our knowledge of whether RPTs are used to manage earnings and how they are used for this purpose. We attempt to investigate whether firms conducting RPTs engage in other earnings management methods in a coordinated manner. To answer this question, we assess the association between RPTs, accrual-based earnings management and real earnings management. We argue that the amount of disclosed RPTs can indicate whether a firm uses RPTs as a separate tool for managing earnings as a substitute for other forms of earnings management or whether RPTs are used alongside accrual and real earnings management practices. A positive relationship will provide evidence that firms use RPTs jointly with other earnings management tools or at least show that RPTs are a valid signal that indicate that the managers of a company are more likely to be engaged in other opportunistic reporting phenomenon (Kohlbeck and Mayhew, 2017). On the other hand, a negative relationship may indicate that firms conducting RPTs are likely to use RPTs as an alternative tool to manage earnings that can substitute accrual-based or real earnings management. However, if no significant association exists, the argument that RPTs are legitimate business transactions could be supported (Gordon et al., 2004).