Political connections and related party transactions

evidence from Indonesia

Ahsan Habib*, Abdul Haris Muhammadi, Haiyan Jiang

*Corresponding author for this work

Research output: Contribution to journalArticle

13 Citations (Scopus)

Abstract

This paper examines whether politically connected firms use related party transactions as a tunneling mechanism in Indonesia. We further investigate whether the presence of tunneling compels managers to manage earnings to conceal such expropriation of resources. Our study is motivated by conflicting evidence in the extant literature about the role of political connections and related party transactions. Using data from Indonesia, we document that politically connected firms use related party loans to tunnel resources, and that this effect is more pronounced for firms with government connections. We further document that politically connected firms manage earnings to conceal their tunneling activities. By documenting the role of related party transactions as a specific channel through which connected firms expropriate resources, we enrich the political connection and related party transactions literature.

Original languageEnglish
Pages (from-to)45-63
Number of pages19
JournalThe International Journal of Accounting
Volume52
Issue number1
DOIs
Publication statusPublished - 1 Mar 2017
Externally publishedYes

Keywords

  • Earnings management
  • Indonesia
  • Political connections
  • RPTs

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