Political Connections, Related Party Transactions and Earnings Management In Listed Companies in Tehran Stock Exchange

Abstract

<p>In firms with political connections, Related party transactions may facilitate the goals of this. In other words, related party transactions in firms with political connections and existence influential members, could lead to abuse of company resources and therefore the earnings management. The purpose of this study, first, is to examine the relationship between political connections and related party transactions, second, investigate the impact of political connections on the relationship between the related party transactions and earnings management. In this paper, political connections are measured by factor analysis and including five variables: stock market value, assets book value, income taxes, number of employees, and the insurance payment. In order to test the research hypotheses, we use 120 companies' financial information in the Tehran Stock Exchange in the period 2010 to 2017 and analyze this information with multiple linear regression and panel data. The results showed a positive and significant relationship between political connections. also, not found a significant relationship between related party transactions and earnings management, but with the addition of political connections, found a positive relationship between the related party transactions and earnings management<br></p>