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Does Auditors' Reputation 'Discourage' Related-Party Transactions? The French Case

Author

Listed:
  • Moez Bennouri

    (NEOMA - Neoma Business School)

  • Mehdi Nekhili

    (URCA - Université de Reims Champagne-Ardenne)

  • Philippe Touron

    (UP1 - Université Paris 1 Panthéon-Sorbonne)

Abstract

We use a unique data set from a sample of 85 French firms over the period 2002-2008 in order to answer the following questions: Is there any relation between the use of auditors with a brand-name reputation for providing high-quality audit reports and the number of related party transactions (RPTs) reported to outside shareholders? And, how does a more transparent environment for the reporting of related party transactions affect this relationship, if at all? We find that firms audited by Big 4 auditors report fewer related party transactions. The period under study includes the change in accounting standards in Europe that occurred in 2005 with the adoption of IFRS standards, which resulted in a more transparent reporting environment for RPTs. We find that the negative relationship between auditor reputation and the number of reported of RPTs is "weaker" in a more transparent reporting environment. We argue that these results are related to the accounting uncertainty surrounding the reporting of related party transactions that particularly affects the behavior of Big 4 auditors.

Suggested Citation

  • Moez Bennouri & Mehdi Nekhili & Philippe Touron, 2015. "Does Auditors' Reputation 'Discourage' Related-Party Transactions? The French Case," Post-Print hal-01163214, HAL.
    • Handle: RePEc:hal:journl:hal-01163214
    DOI: 10.2308/ajpt-51036
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    Cited by:

    1. Chen, Ching-Lung & Chen, Chung-Yu & Weng, Pei-Yu, 2020. "Do related party transactions always deteriorate earnings informativeness?," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    2. Hyunjung Choi & Jungeun Cho, 2021. "Related-Party Transactions, Chaebol Affiliations, and the Value of Cash Holdings," Sustainability, MDPI, vol. 13(2), pages 1-13, January.
    3. Nicole V. S. Ratzinger-Sakel & Sophie Audousset-Coulier & Jaana Kettunen & Cédric Lesage, 2013. "Joint Audit: Issues and Challenges for Researchers and Policy-Makers," Accounting in Europe, Taylor & Francis Journals, vol. 10(2), pages 175-199, November.
    4. Bi, XiaoGang & Tang, Judy & Tharyan, Rajesh, 2020. "Switching due diligence auditor in Chinese mergers and acquisitions," Research in International Business and Finance, Elsevier, vol. 54(C).
    5. Farooq, Muhammad Umar & Su, Kun & Boubaker, Sabri & Ali Gull, Ammar, 2022. "Does gender promote ethical and risk-averse behavior among CEOs? An illustration through related-party transactions," Finance Research Letters, Elsevier, vol. 47(PB).
    6. Bhandari, Avishek & Kohlbeck, Mark & Mayhew, Brian, 2022. "Association of related party transactions with sensitivity of investments and external financing," Journal of Corporate Finance, Elsevier, vol. 72(C).
    7. Andrikopoulos, Andreas & Merika, Anna & Merikas, Andreas & Sigalas, Christos, 2021. "Related party transactions and principal-principal conflicts in public companies: Evidence from the maritime shipping industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    8. Mai, Nhat Chi, 2020. "Related Party Transactions, State Ownership, the Cost of Corporate Debt, and Corporate Tax Avoidance: Evidence from Vietnam," OSF Preprints y5qj3, Center for Open Science.

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