Political Connections and Abnormal Transactions by Related Parties

Political connections can affect the behavior of companies in terms of operational and financial reporting. In this regard, the purpose of this research is to investigate the effect of corporate political connections on the use of abnormal transactions by related parties. The research sample includes 86 companies listed in Tehran Stock Exchange for the years of 2009 to 2017. In order to test the research hypotheses, a multivariable regression model and generalized least squares method have been used in a panel data set. The results show that political connections significantly reduce the abnormal credit and sales to related parties. Findings further document that political connections reduce significantly earnings management by granting abnormal credit to related parties. However, political connections do not have any significant effect on earnings management through abnormal sales to related parties.