Relationship between Related Party Transactions and Earnings Management

Document Type : Research Paper


1 Assistant Prof., Faculty of Management, University of Qom, Iran

2 M.Sc. of Accounting, University of Qom, Iran


This study uses data from companies listed on the Tehran
Stock Exchange to investigate whether related party transactions are
associated with earnings management. According to the agency theory
because of the separation of ownership from control, conflict of
interest may arise, so if a firm`s executives and/or board members
engage in related party transactions to expropriate the firm`s
resources, then they have incentives to manage earnings to mask such
expropriation. The research uses the related party transactions as the
independent variable and discretionary accruals as the dependent
variable. The sample of study includes 145 companies from 2008 to
2012. The panel data and multiple linear regressions are used to
examine the hypothesis. The results of this study reveal that there is a
significant positive relationship between the related party transactions
and earnings management.