Effect of Non-Cash and Non-Operating Related Party Transactions on Board of Directors’ Compensation

Document Type : Research Paper

Authors

1 Prof in Accounting. Shahid Beheshti University, Tehran, Iran

2 Asistance Prof in Accounting, Department of accounting, Hashtrood Branch, Islamic Azad University, Hashtrood, Iran

Abstract

The basis for calculating compensation is based on contracts consisting of accounting figures and in particular net profit, and related party transactions by exercising the authority of managers in choosing accounting and reporting procedures can be used to manage and manipulate profits and secure the interests of certain groups at the cost of reducing the value of the company to other stakeholders. The purpose of this study is to investigate the effect of non-cash and non-operating related party transactions on board of directors’ compensation by analyzing the efficient contracts hypothesis versus corporate governance weakness hypothesis. In order to test the research hypotheses, 118 companies were selected in the period 2011-2019 and analyzed using multiple regression models. The results of test the research hypotheses show that the non-cash related party transactions and non-operating related party transactions have a positive effect and fluctuations of non-operating related party transactions have a negative effect on the board compensation. Also, the corporate governance quality causes a negative effect on the relationship between the non-operating related party transactions with the board of directors’ compensation. Which indicates the replacement of the efficient contracting approach with opportunistic approach of related party transactions by presence of strong corporate governance. While strong corporate governance has no effect on the relationship between non-cash related party transactions and board of directors’ compensation. The knowledge enhancement of the research is the emphasis on strengthening the corporate governance mechanisms in order to increase the reliability of transactions and the formation of effective contracts.

Keywords

References

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Journal of Accounting and Social Interests
Volume 12, Issue 3 - Serial Number 46
September 2022
Pages 157-182

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History

  • Receive Date: 09 July 2021
  • Revise Date: 08 July 2022
  • Accept Date: 09 November 2021

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