The effect of related party transactions on earnings management of listed companies in Vietnam

Abstract

Recent presence of related party transactions in scandal accounting frauds has attracted academic researches’ concerns about the role of related party transactions in earnings management. There are mixed academic results about the effect of related party on earnings management. Hence, the research aims at examining the association between related party transactions and earnings management of listed companies in Vietnam. To test this relationship, the match pair analysis is used by matching firms disclosing related party transactions with firms not disclosing related party transactions with similar total assets and the same industry. Previous study presents the advantage of match pair analysis in minimizing concerns regarding the role of potential confounding effects. The discretionary accruals are measured as the proxy of earnings management. The Cross Sectional Modified Jones Model (1991) is used to measure accruals. Moreover, the multi regression analysis is applied to investigate the effect of related party transactions on earnings management. The findings of the study indicate that the presence of related party transactions may induce higher earnings management.