Related Party Transaction and Revenue－Expense Matching

초록

This study examines the effect of firms’ related－party transactions on the contemporaneous relationship between revenues and expenses. Given that related－party transactions adversely affect earnings quality and stimulate earnings management by firms, this study predicts that related－party transactions negatively affect revenue－expense matching. Using data on Korean－listed firms for the period 2012－2019, a negative association was observed between related－party transactions and revenue－expense matching. Classifying related－party transactions into operating and non－operating related－party transactions, the results show that non－operating related－party transactions adversely affect revenue－expense matching. Furthermore, the negative association between related－party transactions and revenue－expense matching was more pronounced for firms with poor financial health. Specifically, for financially weak firms, non－operating related－party transactions adversely influenced revenue－expense matching. This study provides practical implications for investors and regulators by showing that related－party transactions critically influence the fundamental quality of earnings. Thus, it could impact investors’ valuation process. Moreover, the results suggest that regulators and standard setters should take related－party transactions into account to assess the regulations and accounting standards.

키워드