Related-Party Transactions and Financial Statement Comparability: An Empirical Study of the Conflict of Interest Hypothesis

According to the conflict of interest hypothesis, directors take advantage of related-party transactions for their personal benefits so that companies with related-party transactions present less comparable financial information to mask the adverse effects of such transactions and thus prevent stakeholders from recognizing them. Given this argument, this study aims at exploring the effect of related-party transactions on the comparability of financial statements. To do so, a sample of 86 firms listed in Tehran Stock Exchange during the years 2012-2016 were selected and then tested using multivariate regression model based on panel data. In accordance with the conflict of interest hypothesis, the results revealed that related-party transactions lead to a fall in financial information comparability. The findings of the study not only fill the research gap in the field, but also benefit investors, stock exchange and other stakeholders in decision making process