The main purpose of this study is to examine the impact of earnings management (EM) and some governance mechanisms including audit committee (AC) features and the external auditor quality (EXQ) on related party transactions (RPTs) of listed firms in four Gulf Cooperation Council (GCC) countries, namely Bahrain, KSA, Kuwait and UAE. A sample of 454 firm-year observations is used during a four-year period (2016-2019). Four models of Hierarchical Multiple Regression (HMR) are performed to regress five independent variables (firm EM, AC independence, AC number of meetings, AC size and EXQ) on RPTs which are represented by two main transactions (Purchases of goods from RP and Sales of goods to RP). Listed firms in KSA have the greatest volume of both types of RPTs over the study period followed by listed firms from Kuwait, Bahrain, and UAE. Linear HMR regression models indicate that only two independent variables (firm EM and EXQ) are significantly explaining both dependent variables of RPTs, and they are not explained by any AC independent variables. Findings of this study suggest that the mere presence of RPTs in GCC companies does not necessarily suggest that firms’ management engage in greater earnings management. This study may afford additional valued insights on factors affecting RPTs. Empirical evidence on the RPTs area of accounting research may present relevant awareness to various interested stakeholders covering regulators of stock markets in GCC area, managers of listed firms and other concerned stakeholders. To our best knowledge, there is no empirical research in the GCC area deals with the topic of the current study. |
