Related Party Transactions and Accrual Earnings Management: The Role of Organizational Capital as a Moderator
DOI:
https://doi.org/10.38035/dijefa.v5i3.2535Keywords:
Related Party Transactions, Organizational Capital, Accrual Earnings ManagementAbstract
This study aims to test and analyze the effect of related party transactions on accrual earnings management which is moderated by organizational capital. This study uses manufacturing companies listed on the Indonesian Stock Exchange (BEI) in 2018-2021 using a purposive sampling method. A panel data approach was used to test the hypotheses of this study. The results of this study found that related party transactions had a positive and significant effect on accrual earnings management, while organizational capital cannot strengthen the effect of related party transactions on accrual earnings management. This study has important implications for the development of agency theory. This study shows that agency theory has an important role in creating information asymmetry between shareholders and company management. Information asymmetry triggers managers' actions to manage earnings on an accrual basis through the use of related party transactions. The aim is to improve company management performance, so that managers' motivation to obtain bonuses can be achieved.
References
Alhadab, M., Abdullatif, M., & Mansour, I. (2020). Related party transactions and earnings management in Jordan: the role of ownership structure. Journal of Financial Reporting and Accounting, 18(3), 505–531.
Al-Dhamari, R. A., Al-Gamrh, B., Ismail, K. N. I. K., & Ismail, S. S. H. (2018). Related party transactions and audit fees: The role of the internal audit function. Journal of Management and Governance, 22(1), 187-212.
Amin, A., Rehman, R. U., & Ali, R. (2022). Does gender diversity on the board reduce agency cost? Evidence from Pakistan. Gender in Management: An International Journal, 37(2), 164-181.
Atkeson, A., & Kehoe, P. J. (2005). Modeling and measuring organizational capital. Journal of Political Economy, 113(5), 1026-1053.
Bian, H. Kuo, J. M., Pan, H., & Zhang, Z. (2022). The role of managerial ownership in dividend tunneling: Evidence from China. Corporate Governance: An International Review, 31(2).
Biggerstaff, L., Blank, B., & Goldie, B. (2019). Do incentive work? Opinion-based compensation and corporate innovation. Journal of Corporate Finance, 58, 415-430.
Boubaker, S., Hasan, M. M., & Habib, A. (2022). Organizational capital, tournament incentives and firm performance. Finance Research Letters, 46(B), 1-8.
Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity. Journal of Accounting and Economics, 50, 2-19.
Dechow, P. M., Sloan, R. G., Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193-225.
Dou, H., Liu, Y., Shi, Y., & Xu, H. (2022). Are related-party transactions beneficial or detrimental in emerging markets? New evidence of financial services agreements from China. International Review of Financial Analysis, 81.
Eisfeldt, A. L., & Papanikolaou, D. (2013). Organizational capital and the cross-section of expected return. Journal of Finance, 68(4), 1365-1406.
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.
Elkelish, W. W. (2017). Related party transaction disclosure in the emerging market of the United Arab Emirates. Accounting Research Journal, 30(4), 362-378.
Gavana, G. Gottardo, P., & Moisello, A. M. (2022). Related party transaction and earnings management in family firms: the moderating role of board characteristics. Journal of Family Business Management.
Habib, A., Muhammadi, A., Jiang, H. (2017). Political connections and related party transaction: evidence from Indonesia. The International Journal of Accounting, 52(1), 45-63.
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.
Huu Nguyen, A., Thuy Doan, D., & Ha Nguyen, L. (2020). Corporate governance and agency cost: empirical from vietnam. Journal of Risk and Financial Management, 13(5), 1-15.
Jalan, A., Badrinath, S., & Al-Gamrh, B. (2020). Women on audit committees and the relationship between related party transactions and earnings management. Strategic Change, 29(3), 389-406.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Jian, M., & Wong, T. J. (2010). Propping through related party transactions. Review of Accounting Studies, 15(1), 70-105.
Jiang, G., Lee, C. M. C., & Yue, H. (2010). Tunneling through intercorporate loans: the China experience. Journal of Financial Economics, 98(1), 1-20.
Kharista, M., Purnomosidhi, B., & Subekti, I. (2020). The practice of expropriation through related party transactions in Indonesia. Jurnal Reviu Akuntansi dan Keuangan, 10(2), 371-383.
Khuong, N. V., Liem, N. T., Anh, L. H. T., Dung, B. T. N. (2023). Related party transactions, accrual-based earnings management nad real activities earnings management in emerging market. Pacific Accounting Review, ahead-of-print No.
Le, H. T. T. (2020). The impact of auditor specialization and banks listing status on earnings management in Vietnamese commercial banks. Asian Journal of Law and Economics, 1-16.
Lev, B., Radhakrishman, S., Zhang, W. (2009). Organizational capital. Abacus, 45(3), 275-298.
Li, K., Qiu, B., & Shen, R. (2018). Organizational capital and mergers and acquisitions. Journal Finance Quantity Analysis, 53(4), 1871-1909.
Maigoshi, Z. S., Latif, R. A., & Kamardin, H. (2016). Earnings management: a case of related party transactions. International Journal of Economics and Financial Issues, 6(7), 51-55.
Marchini, P. L., Mazza, T., & Medioli, A. (2018). The impact of related party transactions on earnings management: some insights from the Italian context. Journal of Management and Governance, 22(4), 981-1014.
Nguyen, T. P. H., & Tran, V. L. (2020). The impact of related parties trading on the listed company’s earnings management-evidence in vietnam. Management, 24(2), 181-208.
Nurim, Y., Sunardi, S., & Raharti, R. (2017). The type I versus type II agency cinflict on earnings management. Jurnal Dinamika Manajemen, 8(1), 44-58.
Panda, B., & Leepsa, N. M. 92017). Agency theory: review of theory and evidence on problems and perspectives. Indian Journal of Corporate Governance, 10(1), 74-95.
Penman, S. H. (2013). Financial statement analysis and security valuation (5th ed). McGraw-Hill.
Rahmat, M. M., Muniandy, B., & Ahmed, K. (2020). Do related party transactions affect earnings quality? evidence from East Asia. International Journal of Accounting and Information Management, 28(1), 147-166.
Rankin, M., Stanton, P., McGowan, S. Ferlauto, K., & Tilling, M. (2012). Contemporary Issues in Accounting, John Wiley and Sons Australia, Milton.
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.
Sanbet, L. (2011). The rise of equity-based compensation: the bright and the dark, 25 for 25: observations on the past, present, and future of corporate governance.
Schipper, K. (1989). Comentary on earnings management. Accounting Horizons, 3(4), 91-106.
Scott, W. R., & O'Brien, P. C. (1997). Financial accounting theory. Upper Saddle River, NJ: Prentice Hall.
Tambunan. M. E., Siregar, H., Manurung, A. H., Priyarsono, D. S. (2017). Related party transactions and firm value in the business groups in the Indonesia stock exchange. Journal of Applied Finance and Banking, 7(3), 1-20.
Tarighi, H., Hosseiny, Z. N., Abbaszadeh, M. R., Zimon, G., & Haghighat, D. (2022). How do financial distress risk and related party transactions affect financial reporting quality? Empirical evidence from Iran. Risks, 10(3).
Zang, A. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management. The Accounting Review, 87(2), 675-703.
Zimon, G., Appolloni, A., Tarighi, H., Shahmohammadi, S., & Daneshpou, E. (2021). Earnings management, related party transactions and corporate performance: the moderating role of internal control. Risks, 9, 1-26.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Elia Rossa, Hapzi Ali, Dian Sudiantini
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors who publish their manuscripts in this journal agree to the following conditions:
- The copyright on each article belongs to the author(s).
- The author acknowledges that the Dinasti International Journal of Economics, Finance & Accounting (DIJEFA) has the right to be the first to publish with a Creative Commons Attribution 4.0 International license (Attribution 4.0 International (CC BY 4.0).
- Authors can submit articles separately, arrange for the non-exclusive distribution of manuscripts that have been published in this journal into other versions (e.g., sent to the author's institutional repository, publication into books, etc.), by acknowledging that the manuscript has been published for the first time in the Dinasti International Journal of Economics, Finance & Accounting (DIJEFA).
