Auditor Expertise and the Relation between Related Party Transactions and Investment Efficiency

This research is aimed to investigate the moderating effect of auditor expertise on the relation between related party transactions and investment efficiency. In other words, the study seeks to answer the question “whether auditor expertise will decrease the effect of related party transactions on investment efficiency. It is expected that the results help to understand factors moderating the relation between related party transactions and investment efficiency. Hence, two hypotheses are developed and data from 65 firms listed in Tehran Stock Exchange for the period from 2009 to 2015 are analyzed. The results show that there is a significant negative relation between related party transactions and investment efficiency. In other word, managers incurring considerable agency costs, opportunistically use related party transactions which lead to inefficient investment. Also, the findings indicate that auditor industry expertise moderates the relation between related party transactions and investment efficiency. In fact, the negative relation between related party transactions and investment efficiency is weaker in firms audited by auditors with industry expertise as compared to other firms.