Related Party Transactions And Financial Reporting Quality: A Conceptual Paper
Keywords:
Related party transactions Financial reporting quality Earnings management Accrual Quality Propping TunnellingAbstract
inancial reporting quality is significant in sustaining a stakeholder's trust and confidence in making useful decisions, particularly for investors, as they accurately reflect a true picture of the financial health of a firm. A major concern is that related party transactions (RPTR) could potentially lead to recurring financial scandals and distort the quality of financial reporting. Related party transactions (RPTR) are legitimate and not prohibited. However, there is controversy over whether RPTR props up the wealth of shareholders or create conflicts of interest that expropriate shareholders via self-dealing. The ongoing debates in the literature on whether RPTR is beneficial or detrimental have motivated us to examine the relationship between RPTR and FRQ, as assessed by accrual quality. By postulating agency theory, this study predicts that the Malaysian public listed firm might use RPTR in association with downward accrual quality as well as an autonomous form of earning manipulations through conflicts of interest by opportunistic behaviours. This paper fills the literature gap by focusing on an area of sparse investigation in the Malaysian environment and seeks to extend the current stream of research by suggesting that future studies should test the RPTR-FRQ relationship.
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