Product Market Competition, Related Party Transactions and Fee of Audit Services

Document Type : Research Paper


1 Associate Prof of Accounting., Faculty of Economic and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran

2 MSc. Student of Accounting., Faculty of Economic and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran


Related-party transactions may violate the assumption of normal market transactions. This will distort the reliability and authentic reflection of accounting data, which will consequently aggravate the customer’s business risk by auditor. Therefore, related-party transactions will probably increase the cost of audit services. On the other hand, audit costs will be lower for companies making related-party transactions. That is because auditors tend to have less difficulty in examining such transactions than those made with third parties. This study is intended to provide evidence about the effect of related-party transaction on the cost of audit services. It is also explored the interactive effect of product market competition on the relationship between related-party transaction and the cost of audit services. The research hypotheses are tested through data from 112 companies listed on the Tehran Stock Exchange (TSE) during 2007-2015. Moreover, the data are analyzed and the hypotheses are tested based on the multivariate regression model and panel data. The results indicates that there is a significantly positive relationship between related-party transactions and the cost of audit services. Meanwhile, product market competition does not mitigate such relationship


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