Journal of
Accounting and Taxation

  • Abbreviation: J. Account. Taxation
  • Language: English
  • ISSN: 2141-6664
  • DOI: 10.5897/JAT
  • Start Year: 2009
  • Published Articles: 206

Full Length Research Paper

Related party transactions and their association with earnings management – evidence of Hong Kong listed companies

Patrick Kuok Kun CHU
  • Patrick Kuok Kun CHU
  • Department of Accounting and Information Management, Faculty of Business Administration, University of Macau, Macao, China.
  • Google Scholar
Mayava Weng In LEONG
  • Mayava Weng In LEONG
  • Department of Accounting and Information Management, Faculty of Business Administration, University of Macau, Macao, China.
  • Google Scholar


  •  Received: 02 August 2021
  •  Published: 31 July 2021

Abstract

This study empirically investigates whether related party transactions play an important role in earnings management in Hong Kong Stock Exchange, by using manually collected data comprising 1,278 firms’ yearly observations from all listed company on Hang Seng Composite Industry Indexes from 2016 to 2018. This study analyzes the three most frequent types of related party transactions, including related sales, related lending and related borrowing, and to examine their associations with earnings management. The findings suggest that companies did not have abnormally high level of related party transactions when they have earnings management incentives. Related party transactions are not used in income smoothing or to inflate earnings in Hong Kong Stock Exchange. This study may provide insights to investors on how companies use related party transactions to manipulate earnings.

 

Key words: Related party transactions, earnings manipulation.