The effect of related party transactions on Egyptian firm performance: the role of audit quality

Abstract EN

The aim of this research is three-fold as (i) to test the influence of the related party transactions (RPTs) on the Egyptian firm performance (FP), (ii) to test the moderating effect of audit quality (AQ) on this relation, and (iii) to investigate the effect of transaction type and related party (RP) nature/type on FP.

The research uses a sample of listed firms on the Egyptian Stock Exchange from 2013 to 2019 as the basis for the analysis.

The data is analyzed using the panel corrected standards errors (PCSE), and the generalized least squares (GLS).

The results suggest that (i) RPTs have a negative effect on ROA and Tobin's Q, (ii) and AQ decreases the negative effect of RPTs on ROA and increases this negative effect on Tobin's Q.

(iii) Further tests show that purchase transactions with RPs positively affect ROA, while the sale transactions negatively affect ROA, additionally, there is a negative effect of the financing transactions on ROA and Tobin's Q.

Concerning the effect of RP type, the results reveal that transactions with management/board and associates have a positive effect on ROA, and transactions with the joint ventures have a negative effect.

Besides, the results indicate a negative effect of the transactions with the subsidiaries, joint ventures and associates on Tobin's Q.

This research would help policymakers and investors; where it provides evidence about the consequences of the RPTs, also, it contributes to the existing literature of RPTs, where it provides evidence from one of the emerging markets; Egypt, on the impact of RPTs on FP.