The impact of related party transactions on earnings management: some insights from the Italian context

Marchini, Pier Luigi; Mazza, Tatiana; Medioli, Alice

doi:10.1007/s10997-018-9415-y

Cited by 35 publications

(50 citation statements)

References 110 publications

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“…The regression is significant, with an overall R-square of 0.276, which is an acceptable value in the accounting studies (Marchini et al, 2018). Focusing on the first hypothesis the coefficient of Ownership is negative and significant (coefficient= -0.009; p-value=0.077) meaning that the relationship between the ownership concentration and the level of risk awareness has a negative trend.…”

Section: Number Of Observation 233mentioning

confidence: 76%

Corporate Ownership Structure as a Determinant of “Risk Taking”: Insights from Italian Listed Companies

Marchini¹,

Tibiletti²,

Medioli³

et al. 2020

IJBM

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Ever since major accounting scandals and corporate collapses of the early 2000’s, the improved risk taking and the lax approach to risk management procedures, which are viewed as contributing factors to the market breakdown that occurred in the international market and, in particular, in the U.S. in 2007, have led to an increased awareness of the importance of managing risk on the part of listed companies. Risk management has gained importance in the definition of what it means to be the best and most efficient corporate governance structure and mechanism, as it can play a fundamental role in helping to achieve the company’s target. Also disclosure related to risk management is fundamental for the efficient functioning of capital markets since it helps to improve corporate transparency and to reduce the information asymmetry between insiders and outsiders. This paper aims to investigate the relationship between ownership structure and corporate risk-taking behavior and disclosure, as a tool for protecting shareholders, among Italian listed companies. The analysis is devoted to the Italian stock market because it is strongly characterized by a high ownership concentration and by the presence of a family ownership model; and this scenario makes the Italian one an interesting case to study. Based on a sample of 233 Italian listed companies, through a multivariate regression, we find that a high level of ownership concentration is positively related to a firms' low level of risk taking by the board of directors, so giving interesting insights to regulators and practitioners, as well as for further research.

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Section: Number Of Observation 233mentioning

confidence: 76%

Corporate Ownership Structure as a Determinant of “Risk Taking”: Insights from Italian Listed Companies

Marchini¹,

Tibiletti²,

Medioli³

et al. 2020

IJBM

Self Cite

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“…Family ownership, conglomerate structures, and economic groups are common in Chile that have been shown to affect firm value (Lefort and Walker 2007), stock market liquidity (Gjerde et al 2013), and dividend policy (Mahenthiran et al 2020). Marchini et al (2018) find that RPTs with the ultimate parent company are associated with lower quality earnings, and the decision to engage in earnings management is associated with lower disclosure quality too. Hence, RPTs between companies that belong to the same economic group affect the transparency of disclosures, the earnings quality, and could be related to the probability of misstatements.…”

Section: Related Party Transactions Literaturementioning

confidence: 90%

The Effect of Board Links, Audit Partner Tenure, and Related Party Transactions on Misstatements: Evidence from Chile

Mahenthiran

Palavecinos

Fuente‐Mella

2020

IJFS

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Companies restate when material misstatements are identified in previously issued financial statements. Misstatement research in Latin America is sparse, even though they are an important context to study this phenomenon. Chile’s corporate governance regulations are considered exemplars for Latin American countries but its auditing profession is not well developed. Thus, Chile provides an interesting context to study the complementary roles of audit and board governance affecting misstatements. Using a sample of 104 Chilean listed firms over seven years, our study finds that the board links and audit partner tenure negatively affect misstatements. Specifically, given the prevalence of related party transactions (RPTs) in conglomerates, the finding suggests that cross directors monitor high-value RPTs, but that this is not a substitute for auditor expertise. The findings raise questions about the advisability of mandating audit partner rotation to strengthen auditor independence because the results indicate that a short audit partner tenure leads to the auditor not developing client-specific knowledge. The study makes contributions to the corporate governance literature by highlighting that board monitoring is not a good substitute for auditor monitoring of financial reporting integrity, and suggesting the need for having licensing requirements to become an auditor.

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“…Cheung et al (2009) is in line with Gordon, Henry and Palia (2005) that firms' prop-up their earnings via RPTs. Aharony et al 2010and Marchini et al (2018) argue that firms use RPTs for opportunistic earnings management, and the parent company use related-party loans to tunnel out the resources of the affiliated firms. Apart from manipulation of accruals, RPTs are also used for real earnings management (Wang & Yuan, 2012).…”

Section: Literature Review and Development Of Hypothesesmentioning

confidence: 99%

Related party transactions and audit risk

Rasheed¹,

Hawaldar²,

Mallikarjunappa

2021

Cogent Business & Management

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Related Party Transactions (RPTs) are perceived as genuine transactions, which fulfill the economic needs of a company. However, the controlling shareholders may use RPTs as a tool for transferring the firm's resources for their private benefit. The dual effect of RPTs, i.e., transaction efficiency and conflict of interest between the controlling shareholders and minority shareholders, increase audit risk and as a result, increases the audit fee. The Companies Act, 2013, and Clause 49 of the SEBI listing agreement mandate arm's length principle of pricing of RPTs. However, there are situations in which the regulations are silent about the method of pricing, and this increases the risk of auditors for auditing RPTs. This study intends to examine the relationship between RPTs and audit risk in India, based on a sample of 1,182 firms covering a period from 31 March 2011 to 31 March 2018. Panel data methodology has been applied for empirical analysis and the results show that higher audit fee is an indication of resource transferring RPTs. The results prove that instead of reducing the complexity associated with RPTs, the new RPTs regulations increase audit fee as a result of the increases in audit risk.

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The impact of related party transactions on earnings management: some insights from the Italian context

Cited by 35 publications

References 110 publications

Corporate Ownership Structure as a Determinant of “Risk Taking”: Insights from Italian Listed Companies

Corporate Ownership Structure as a Determinant of “Risk Taking”: Insights from Italian Listed Companies

The Effect of Board Links, Audit Partner Tenure, and Related Party Transactions on Misstatements: Evidence from Chile

Related party transactions and audit risk

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