The relationship between corporate governance and related party transactions

One of the concepts which recently have been discussed a lot by corporate governance regulators and standard setters is related party transaction. Related party transaction due to the complexity in recognition and disclosure are considered to be one the challenges of financial reporting which can influence economic decisions of users. Considering the expansion of related party transactions and the increase of them in companies, it is necessary to create monitoring mechanisms to reduce the financial frauds and to improve the performance. Among these types of monitoring mechanisms, stablishing and performing of proper corporate governance system in companies is one of these mechanisms. The empirical evidences show that corporate governance lessens related party transaction. In this research, the relationship between the mechanisms of corporate governance and related party transactions is investigated. The study sample includes 136 Tehran Stock Exchange listed companies from 1389 to 1393. In order to test the research hypotheses, the multivariable regression model with a data panel was used. The board members independences, boards compensation, stock ownership, change of executive manager, auditor rotation were used as the corporate governance mechanisms. The result of the research indicates that there is a significant and reverse relation between related party transaction and ownership of the institutional stockholders and change of executive manager. There is a reverse relation between related party transaction and autonomy of board of managers’ members but this reverse relation is not significant statistically. There is a direct and significant relation between related party transaction and board of managers’ compensation and there is a direct relation between related party transaction and auditor rotation, which is not significant statistically.