Determinants of the relationship between related party transactions and firm value: evidence from Saudi Arabia

Abstract

Purpose

This study aims to examine the association between related party transactions and firm value. The study also investigates the impact of several determinants of this relationship as moderating variables.

Design/methodology/approach

The paper uses multiple regression models. In the period from 2018 to 2021, a total of 134 non-financial companies listed on the Saudi Stock Exchange were included in the sample, which consisted of 451 firm-year observations.

Findings

This paper finds that related party transactions have a significant negative impact on firm value. Moreover, the negative impact of related party transactions on firm value is increased in the presence of changes in the certain presence of certain moderating variables, such as firm size, leverage and return on assets (ROA). The results of the sensitivity analysis concur with the findings of the basic analysis. There is little evidence in the literature regarding related party transactions and their association with the moderating variables considered in this study.

Originality/value

To the best of the authors’ knowledge, there have been no studies conducted in Saudi Arabia to date that examine the effect of firm size, leverage and ROA on the association between firm value and related party transactions. Consequently, this paper contributes to the limited literature by expanding the existing research and analyzing the impact of firm size, leverage and ROA on the association between related party transactions and firm value.

Citation

Alsultan, A.S. (2023), "Determinants of the relationship between related party transactions and firm value: evidence from Saudi Arabia", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-05-2023-0230