The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia

This study aims to analyze the essential corporate governance determinants of related party transactions (RPTs) in Indonesia. Based on a hand-collected sample of three business groups of small, medium, and large-cap publicly listed firms on the Indonesia Stock Exchange (IDX) for 2013–2019, panel reg...

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Autores principales:	Perdana Wahyu Santosa, Sovi Ismawati Rahayu, Zainal Zawir Simon, Martua Eliakim Tambunan
Formato:	article
Lenguaje:	EN
Publicado:	LLC "CPC "Business Perspectives" 2021
Materias:	audit quality business group corporate governance firm size related party transactions Finance HG1-9999
Acceso en línea:	https://doaj.org/article/7c1c10c7ce67470791cf187a188203a3
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spelling	oai:doaj.org-article:7c1c10c7ce67470791cf187a188203a32021-11-10T11:22:24ZThe moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia10.21511/imfi.18(4).2021.151810-49671812-9358https://doaj.org/article/7c1c10c7ce67470791cf187a188203a32021-11-01T00:00:00Zhttps://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/15805/IMFI_2021_04_Santosa.pdfhttps://doaj.org/toc/1810-4967https://doaj.org/toc/1812-9358This study aims to analyze the essential corporate governance determinants of related party transactions (RPTs) in Indonesia. Based on a hand-collected sample of three business groups of small, medium, and large-cap publicly listed firms on the Indonesia Stock Exchange (IDX) for 2013–2019, panel regression results find that foreign shareholders and firm size have a significant effect, at –2.402 and 0.248, respectively. The moderating model of audit quality shows that domestic shareholders, foreign shareholders, and firm size are significantly negatively associated, with –5.627 and –5.958 at 5%, respectively. Similar results show that foreign shareholders and independent commissioners significantly negatively affect related party transactions at –2.864 and –1.845, moderating the firm size at 10% and 5%, respectively. The moderation of regression results also indicates that audit quality and firm size tend to strengthen negative effects on the association between related party transactions and corporate governance. The moderation interaction confirms that audit quality will determine that domestic and foreign shareholders tend to increase the number of affiliate transactions. The interaction of complete information quality will force domestic and foreign shareholders to increase the role of affiliate transactions in creating firm value. The larger size of the firm, which is owned by foreign shareholders, will increase the intensity of cross-border related party transactions through the combined effects in the context of internationalization with a tendency of expropriation and transfer pricing practices, which can reduce government tax incomes. Acknowledgment We are grateful to the Ministry of Education, Culture, Research and Technology, Indonesia, for research grant No. 163/E4.1/AK.04.PT/2021, as well as the editor of the Investment Management and Financial Innovations journal, peer reviewers, and some colleagues for their suggestions, criticism and comments that significantly improved this paper.Perdana Wahyu SantosaSovi Ismawati RahayuZainal Zawir SimonMartua Eliakim TambunanLLC "CPC "Business Perspectives"articleaudit qualitybusiness groupcorporate governancefirm sizerelated party transactionsFinanceHG1-9999ENInvestment Management & Financial Innovations , Vol 18, Iss 4, Pp 166-176 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	audit quality business group corporate governance firm size related party transactions Finance HG1-9999
spellingShingle	audit quality business group corporate governance firm size related party transactions Finance HG1-9999 Perdana Wahyu Santosa Sovi Ismawati Rahayu Zainal Zawir Simon Martua Eliakim Tambunan The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia
description	This study aims to analyze the essential corporate governance determinants of related party transactions (RPTs) in Indonesia. Based on a hand-collected sample of three business groups of small, medium, and large-cap publicly listed firms on the Indonesia Stock Exchange (IDX) for 2013–2019, panel regression results find that foreign shareholders and firm size have a significant effect, at –2.402 and 0.248, respectively. The moderating model of audit quality shows that domestic shareholders, foreign shareholders, and firm size are significantly negatively associated, with –5.627 and –5.958 at 5%, respectively. Similar results show that foreign shareholders and independent commissioners significantly negatively affect related party transactions at –2.864 and –1.845, moderating the firm size at 10% and 5%, respectively. The moderation of regression results also indicates that audit quality and firm size tend to strengthen negative effects on the association between related party transactions and corporate governance. The moderation interaction confirms that audit quality will determine that domestic and foreign shareholders tend to increase the number of affiliate transactions. The interaction of complete information quality will force domestic and foreign shareholders to increase the role of affiliate transactions in creating firm value. The larger size of the firm, which is owned by foreign shareholders, will increase the intensity of cross-border related party transactions through the combined effects in the context of internationalization with a tendency of expropriation and transfer pricing practices, which can reduce government tax incomes. Acknowledgment We are grateful to the Ministry of Education, Culture, Research and Technology, Indonesia, for research grant No. 163/E4.1/AK.04.PT/2021, as well as the editor of the Investment Management and Financial Innovations journal, peer reviewers, and some colleagues for their suggestions, criticism and comments that significantly improved this paper.
format	article
author	Perdana Wahyu Santosa Sovi Ismawati Rahayu Zainal Zawir Simon Martua Eliakim Tambunan
author_facet	Perdana Wahyu Santosa Sovi Ismawati Rahayu Zainal Zawir Simon Martua Eliakim Tambunan
author_sort	Perdana Wahyu Santosa
title	The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia
title_short	The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia
title_full	The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia
title_fullStr	The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia
title_full_unstemmed	The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia
title_sort	moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: evidence from indonesia
publisher	LLC "CPC "Business Perspectives"
publishDate	2021
url	https://doaj.org/article/7c1c10c7ce67470791cf187a188203a3
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The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia

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