The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia
-
Received October 1, 2021;Accepted November 3, 2021;Published November 10, 2021
-
Author(s)Link to ORCID Index: https://orcid.org/0000-0002-0221-3910Link to ORCID Index: https://orcid.org/0000-0001-8715-4659
-
DOIhttp://dx.doi.org/10.21511/imfi.18(4).2021.15
-
Article InfoVolume 18 2021, Issue #4, pp. 166-176
- TO CITE АНОТАЦІЯ
-
Cited by2 articlesJournal title: Business: Theory and PracticeArticle title: MODERATING ROLE OF AUDIT QUALITY AND FIRM SIZE ON PRETAX PROFIT MARGIN AND RELATED PARTY TRANSACTIONS: EVIDENCE FROM INDONESIADOI: 10.3846/btp.2023.17946Volume: 24 / Issue: 1 / First page: 291 / Year: 2023Contributors: Perdana Wahyu Santosa, Sovi Ismawati Rahayu, Zainal Zawir Simon, Pramesti Wulandari SantosoJournal title: Cogent Business & ManagementArticle title: Is related party transactions linked to accounting comparability? Evidence from emerging marketDOI: 10.1080/23311975.2022.2163094Volume: 10 / Issue: 1 / First page: / Year: 2023Contributors: Phung Anh Thu, Pham Quang Huy, Le Huu Tuan Anh
- 910 Views
-
293 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study aims to analyze the essential corporate governance determinants of related party transactions (RPTs) in Indonesia. Based on a hand-collected sample of three business groups of small, medium, and large-cap publicly listed firms on the Indonesia Stock Exchange (IDX) for 2013–2019, panel regression results find that foreign shareholders and firm size have a significant effect, at –2.402 and 0.248, respectively. The moderating model of audit quality shows that domestic shareholders, foreign shareholders, and firm size are significantly negatively associated, with –5.627 and –5.958 at 5%, respectively. Similar results show that foreign shareholders and independent commissioners significantly negatively affect related party transactions at –2.864 and –1.845, moderating the firm size at 10% and 5%, respectively. The moderation of regression results also indicates that audit quality and firm size tend to strengthen negative effects on the association between related party transactions and corporate governance. The moderation interaction confirms that audit quality will determine that domestic and foreign shareholders tend to increase the number of affiliate transactions. The interaction of complete information quality will force domestic and foreign shareholders to increase the role of affiliate transactions in creating firm value. The larger size of the firm, which is owned by foreign shareholders, will increase the intensity of cross-border related party transactions through the combined effects in the context of internationalization with a tendency of expropriation and transfer pricing practices, which can reduce government tax incomes.
Acknowledgment
We are grateful to the Ministry of Education, Culture, Research and Technology, Indonesia, for research grant No. 163/E4.1/AK.04.PT/2021, as well as the editor of the Investment Management and Financial Innovations journal, peer reviewers, and some colleagues for their suggestions, criticism and comments that significantly improved this paper.
- Keywords
-
JEL Classification (Paper profile tab)G32, G38
-
References38
-
Tables5
-
Figures0
-
- Table 1. Description of variables
- Table 2. Descriptive statistics
- Table 3. Correlation analysis
- Table 4. Panel unit root test of the variables
- Table 5. Panel regression analysis results
-
- Bansal, S., & Thenmozhi, M. (2020). Does Concentrated Founder Ownership Affect Related Party Transactions? Evidence from an Emerging Economy. Research in International Business and Finance, 53(February), 101206.
- Becker, J., & Runkel, M. (2013). Corporate tax regime and international allocation of ownership. Regional Science and Urban Economics, 43(1), 8-15.
- Bena, J., & Ortiz-Molina, H. (2013). Pyramidal ownership and the creation of new firms. Journal of Financial Economics, 108(3), 798-821.
- Bona-Sánchez, C., Fernández-Senra, C. L., & Pérez-Alemán, J. (2017). Related-party transactions, dominant owners and firm value. BRQ Business Research Quarterly, 20(1), 4-17.
- Chee Yoong, L., Alfan, E., & Devi, S. S. (2015). Family Firms, Expropriation and Firm Value: Evidence from Related Party Transactions in Malaysia. The Journal of Developing Areas, 49(5), 139-152.
- Cheung, Y., Rau, P., & Strouraitis, A. (2006). Tunneling, propping, and expropriation: evidence from connected party transactions in Hong Kong. Journal of Financial Economics, 82(2), 343-386.
- Claessens, S., Fan, J. P. H., & Lang, L. H. P. (2006). The benefits and costs of group affiliation: Evidence from East Asia. Emerging Markets Review, 7(1), 1-26.
- Cristea, A. D., & Nguyen, D. X. (2016). Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships. American Economic Journal: Economic Policy, 8(3), 170-202.
- Downs, D. H., Ooi, J. T. L., Wong, W.-C., & Ong, S. E. (2016). Related Party Transactions and Firm Value: Evidence from Property Markets in Hong Kong, Malaysia and Singapore. The Journal of Real Estate Finance and Economics, 52(4), 408-427.
- El-Helaly, M. (2018). Related-party transactions: a review of the regulation, governance and auditing literature. Managerial Auditing Journal, 33(8/9), 779-806.
- El-Helaly, M., Georgiou, I., & Lowe, A. D. (2018). The interplay between related party transactions and earnings management: The role of audit quality. Journal of International Accounting, Auditing and Taxation, 32(July 2018), 47-60.
- Hasnan, S., Daie, M. S., & Hussain, A. R. M. (2016). Related party transactions and earnings quality: Does Corporate Governance Matter. International Journal of Economics and Management, 10(2), 189-219.
- Hendratama, T. D., & Barokah, Z. (2020). Related party transactions and firm value: The moderating role of corporate social responsibility reporting. China Journal of Accounting Research, 13(2), 223-236.
- Juliarto, A., Tower, G., Van der Zahn, M., & Rusmin, R. (2013). Managerial Ownership Influencing Tunnelling Behaviour. Australasian Accounting, Business and Finance Journal, 7(2), 25-46.
- Kang, M., Lee, H. Y., Lee, M. G., & Park, J. C. (2014). The association between related-party transactions and control-ownership wedge: Evidence from Korea. Pacific Basin Finance Journal, 29, 272-296.
- Klassen, K. J., Lisowsky, P., & Mescall, D. (2017). Transfer Pricing: Strategies, Practices, and Tax Minimization. Contemporary Accounting Research, 34(1), 455-493.
- Lastiati, A., Siregar, S. V., Diyanty, V., & Samingun. (2020). Tax avoidance and cost of debt: Ownership structure and corporate governance. Pertanika Journal of Social Sciences and Humanities, 28(1), 533-546.
- Liu, L., Schmidt-Eisenlohr, T., & Guo, D. (2017). International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade-Tax Statistics in the UK (International Finance Discussion Paper No. 1214).
- Lo, A. W. Y., Wong, R. M. K., & Firth, M. (2010). Can corporate governance deter management from manipulating earnings? Evidence from related-party sales transactions in China. Journal of Corporate Finance, 16(2), 225-235.
- Maigoshi, Z. S., Latif, R. A., & Kamardin, H. (2018). Change in value-relevance of disclosed RPT across accounting regimes: Evidence from Malaysia. Research in International Business and Finance, 44(February 2017), 422-433.
- Merle, R., Al-Gamrh, B., & Ahsan, T. (2019). Tax havens and transfer pricing intensity: Evidence from the French CAC-40 listed firms. Cogent Business and Management, 6(1), 1-12.
- Munir, S., Saleh, N. M., Jaffar, R., & Yatim, P. (2013). Family ownership, related-party transactions and earnings quality. Asian Academy of Management Journal of Accounting and Finance, 9(1), 129-153.
- Rasheed, A., Mallikarjunappa, T., & Thomachan, K. T. (2019). Promoter Ownership, Related Party Transactions and Firm Performance: A Study Among Selected Companies in India. FIIB Business Review, 8(3), 205-217.
- Rathke, A. A. T., Rezende, A. J., & Watrin, C. (2020). Classification of transfer pricing systems across countries. International Economics, 164(September 2019), 151-167.
- Richardson, G., Taylor, G., & Lanis, R. (2013). Determinants of transfer pricing aggressiveness: Empirical evidence from Australian firms. Journal of Contemporary Accounting & Economics, 9(2), 136-150.
- Ryngaert, M., & Thomas, S. (2012). Not All Related Party Transactions (RPTs) Are the Same: Ex Ante Versus Ex Post RPTs. Journal of Accounting Research, 50(3), 845-882.
- Saleh, N. M. (2021). Controlling Shareholder Ownership Structure and Conflict-Related Party Transactions. Asian Journal of Accounting and Governance, 15, 1-13.
- Santosa, P. W. (2020a). The moderating role of firm size on financial charactersitics and Islamic firm value at Indonesian equity market. Business: Theory and Practice, 21(1), 391-401.
- Santosa, P. W. (2020b). The Effect of Financial Performance and Innovation on Leverage: Evidence from Indonesian Food and Beverage Sector. Organizations and Markets in Emerging Economies, 11(22), 367-388.
- Santosa, P. W., Aprilia, O., & Tambunan, M. E. (2020). The Intervening Effect of the Dividend Policy on Financial Performance and Firm Value in Large Indonesian Firms. International Journal of Financial Research, 11(4), 408-420.
- Sari, R. C., & Baridwan, Z. (2014). Current Asset Tunneling and Firm Performance in an Emerging Market. Jurnal Akuntansi Dan Keuangan Indonesia, 11(2), 165-176.
- Suk, K. S., Haryanto, M., & Purba, J. T. (2019). Cash holdings of business group-affiliated firms in Indonesia. DLSU Business and Economics Review, 29(1), 40-57.
- Tambunan, M., Siregar, H., Manurung, A., & Priyarsono, D. (2017). Related Party Transactions and Firm Value in the Business Groups in the Indonesia Stock Exchange. Journal of Applied Finance & Banking, 7(3), 1-20.
- Wang, H.-D., Cho, C. C., & Lin, C. J. (2019). Related party transactions, business relatedness, and firm performance. Journal of Business Research, 101(January 2018), 411-425.
- Wong, R. M. K., Kim, J.-B., & Lo, A. W. Y. (2015). Are Related-Party Sales Value-Adding or Value-Destroying? Evidence from China. Journal of International Financial Management & Accounting, 26(1), 1-38.
- Yeh, Y. H., Shu, P. G., & Su, Y. H. (2012). Related-party transactions and corporate governance: The evidence from the Taiwan stock market. Pacific Basin Finance Journal, 20(5), 755-776.
- Ying, Q., & Wang, L. (2013). Propping by controlling shareholders, wealth transfer and firm performance: Evidence from Chinese listed companies. China Journal of Accounting Research, 6(2), 133-147.
- Yoon, K.-S., & Jin, Y. (2021). Related party transactions, agency problem, and exclusive effects. European Journal of Law and Economics, 51, 1-30.
-
-
Conceptualization
Perdana Wahyu Santosa, Martua Eliakim Tambunan
-
Data curation
Perdana Wahyu Santosa, Sovi Ismawati Rahayu, Zainal Zawir Simon
-
Formal Analysis
Perdana Wahyu Santosa
-
Funding acquisition
Perdana Wahyu Santosa
-
Investigation
Perdana Wahyu Santosa, Zainal Zawir Simon
-
Methodology
Perdana Wahyu Santosa, Sovi Ismawati Rahayu, Zainal Zawir Simon, Martua Eliakim Tambunan
-
Project administration
Perdana Wahyu Santosa, Sovi Ismawati Rahayu, Zainal Zawir Simon
-
Software
Perdana Wahyu Santosa, Zainal Zawir Simon
-
Validation
Perdana Wahyu Santosa, Martua Eliakim Tambunan
-
Writing – original draft
Perdana Wahyu Santosa, Martua Eliakim Tambunan
-
Writing – review & editing
Perdana Wahyu Santosa
-
Resources
Sovi Ismawati Rahayu, Martua Eliakim Tambunan
-
Supervision
Sovi Ismawati Rahayu
-
Visualization
Sovi Ismawati Rahayu, Zainal Zawir Simon, Martua Eliakim Tambunan
-
Conceptualization
-
Does board composition have an impact on CSR reporting?
Problems and Perspectives in Management Volume 15, 2017 Issue #2 pp. 19-35 Views: 4455 Downloads: 1718 TO CITE АНОТАЦІЯCorporate social responsibility (CSR) reporting plays a key role in management control, particularly in light of the increased demand for non-financial reporting after the financial crisis of 2008–2009. This literature review evaluates 47 empirical studies that concentrate on the influence of several board composition variables on the quantity and quality of CSR reporting. The author briefly introduces the research framework that underpins current empirical studies in this field. This is followed by a discussion of the main variables of board composition: (1) committees (audit and CSR committees), (2) board independence, (3) board expertise, (4) CEO duality, (5) board diversity (gender and foreign diversity), (6) board activity, and (7) board size. The author, then, summarizes the key findings, discusses the limitations of the existing research and offers useful recommendations for researchers, firm practice and regulators.
-
The impact of key audit matter (KAM) disclosure in audit reports on stakeholders’ reactions: a literature review
Problems and Perspectives in Management Volume 17, 2019 Issue #3 pp. 323-341 Views: 4454 Downloads: 1852 TO CITE АНОТАЦІЯThis article presents a literature review of 49 empirical studies on key audit matter (KAM) disclosure in audit reports. The study involves a structured literature review on KAM disclosure based on the reactions of stakeholders. The limitations of former studies and useful recommendations for research are stressed. Five major streams of empirical research that analyze the impact of KAM disclosure on stakeholders’ reactions are focused: (1) shareholders (e.g. investors’ perceptions of auditors’ responsibility and litigation, value relevance and investors’ decisions); (2) debtholders (e.g. loan contracting terms); (3) external auditors (e.g. audit processes and audit fees); (4) boards of directors (e.g. earnings management); and (5) other stakeholders (e.g. informational value for suppliers and customers). The authors stress that most of the included studies use experimental or archival data and analyze the impact of KAM disclosure on investor reactions in a US-American setting. As the international standard setters assume a positive impact of KAM on stakeholder reactions, mixed empirical results are found. Although there are some indications of decreased earnings management behavior, most studies find no significant changes in auditor behavior. Furthermore, there are many insignificant results with regard to shareholders’ reaction in line with our stakeholder and behavioral agency framework. The literature review is especially useful for management decisions, because firm reputation may be positively or negatively influenced by KAM regulations.
-
Corporate governance and financial performance: an empirical analysis of selected multinational firms in Nigeria
Gideon Tayo Akinleye , Odunayo Olarewaju , Bamikole Samson Fajuyagbe doi: http://dx.doi.org/10.21511/ppm.17(1).2019.02Problems and Perspectives in Management Volume 17, 2019 Issue #1 pp. 11-18 Views: 3385 Downloads: 568 TO CITE АНОТАЦІЯThis study focused on corporate governance and performance of selected Nigerian multinational firms from 2012 to 2016. Specifically, the study focused on the effect of board size, activism and committee activism on return on asset and firm growth rate. Secondary data collected from four multinational firms were analyzed via static panel estimation techniques. While board size and board activism exerted significant negative impact on return on asset, committee activism exerted insignificant impact. The results of the study further showed that board size and board activism exert insignificant negative impact on firm’s growth rate, while committee activism insignificantly spurs firm’s growth rate. Decisively, discoveries from this study reflect that corporate governance has significant negative impact on return on asset, but has insignificant influence on the growth rate of Nigerian multinational firms. Based on these findings, the authors recommended that corporate governance dynamics in firms world over should be reconsidered, such that it gives credence to more than just numbers of persons or meetings held, but the main reasons and deliberations in such meetings. It was also recommended that excessive increase in magnitude or frequency of meetings held by board of directors cum committee should be avoided.