The Effect of Trust and Related Party Transaction on Firm Value
Abstract
This study examines the effect of trust and related party transactions on firm value. The total observation in this study is 185 banking companies listed on the Indonesia Stock Exchange for the 2016-2020 period. Multivariate analysis is employed to test the hypothesis. The results illustrate that the trust and related party transactions have a positive and significant effect on firm value. This implies that the disclosure of the word 'trust' in the management discussion and analysis report (MD&A) reflects that the company's ethical culture and good management responsibility in managing the business convince investors to invest. The increase in debt-related party transactions shows that it is easier for the companies to receive funding to finance the company's operational activities and increase investment rather than making loans with the third parties which seems to be complicated to approach.
Keywords: trust, related party transactions, firm value, MD&A
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References
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Jian, M., & Wong T. J. (2010). Propping through related party transactions. Review of Accounting Studies, 15(1), 70–105. https://doi.org/10.1007/s11142-008-9081-4
Kuan, L., Tower, G., Rusmin, & Zahn, J.-L. W. M. Van der. (2010). Related party transactions and earnings management. Jurnal Akuntansi Dan Auditing Indonesia, 14(2).
Loughran, T., & Mcdonald, B. (2014). Measuring Readability in Financial Disclosures. Journal of Finance, 69(4), 1643–1671.
Obermann, J., Velte, P., Gerwanski, J., & Kordsachia, O. (2020). Mutualistic symbiosis ? through behavioral characteristics. Management Research Review, 43(8), 989–1011. https://doi.org/10.1108/MRR-07-2019-0317
Perryman, A. A., Fernando, G. D., & Tripathy, A. (2015). Do gender differences persist ? An examination of gender diversity on fi rm performance , risk , and executive compensation. Journal of Business Research, 69(2), 579–586. https://doi.org/10.1016/j.jbusres.2015.05.013
Pozzoli, M., Venuti, M., & Parthenope, N. (2014). Related Party Transactions and Financial Performance : Is There a Correlation ? Empirical Evidence from Italian Listed Companies. Open Journal of Accounting, 2014(January), 28–37. https://doi.org/DOI:10.4236/ojacct.2014.31004
Qiu, B., Yu, J., & Zhang, K. (2019). Trust and Stock Price Synchronicity : Evidence from China. Journal of Business Ethics, (1988), 1–13. https://doi.org/10.1007/s10551-019-04156-1
Scholtens, B., & Kang, F. (2012). Corporate Social Responsibility and Earnings Management: Evidence from Asian Economies. Corporate Social Responsibility and Environmental, 20(2), 95–112. https://doi.org/10.1002/csr.1286
Shin, I. H., Sohn, S. K., & Park, S. (2019). Related party transactions and income smoothing : new evidence from Korea. Asia-Pacific Journal of Accounting & Economics, 00(00), 1–18. https://doi.org/10.1080/16081625.2019.1566011
Singh, S., Tabassum, N., & Darwish, T. K. (2017). Corporate Governance and Tobin ’ s Q as a Measure of Organizational Performance. British Journal of Management, 00, 1–20. https://doi.org/10.1111/1467-8551.12237
Sousa-lima, M., Michel, J. W., & Caetano, A. (2013). Clarifying the importance of trust in organizations as a component of effective work relationships. Journal of Applied Social Psychology, 43, 418–427. https://doi.org/10.1111/j.1559-1816.2013.01012.x
Tambunan, M. E., Siregar, H., & Manurung, A. H. (2017). Related Party Transactions and Firm Value in the Business Groups in the Indonesia Stock Exchange. Journal of Applied Finance & Banking, 7(3), 1–20.
Thenmozhi, M., & Sasidharan, A. (2020). Does board independence enhance fi rm value of state-owned enterprises ? Evidence from India and China. European Business Review. https://doi.org/10.1108/EBR-09-2019-0224
Wang, W. K., & Lu, W. M. (2019). Related ‐ party transactions and corporate performance following the adoption of International Financial Reporting Standards in Taiwan. Journal of Business Research, 101(October), 411–425. https://doi.org/10.1002/mde.3106
Whelan, J., & Demangeot, C. (2015). Signallinging Theory. Wiley Encyclopedia of Management.
Wong, R. M. K., & Kim, J. (2015). Are Related-Party Sales Value-Adding or Value-Destroying ? Evidence from China. Journal of International Financial Management & Accounting, 26(1), 1–38.
Xu, Q., Fernando, G. D., & Tam, K. (2019). Advances in Accounting Trust and firm performance : A bi-directional study. Advances in Accounting, 47, 100433. https://doi.org/10.1016/j.adiac.2019.100433
Al-Dhamari, R. A., Al-Gamrh, B., Ismail, K. N. I., & Ismail, S. S. H. (2017). Related party transactions and audit fees : the role of the internal audit function. Journal of Management & Governance, 22(1), 187–212. https://doi.org/10.1007/s10997-017-9376-6
Audi, R., Loughran, T., & Mcdonald, B. (2016). Trust , but Verify : MD & A Language and the Role of Trust in Corporate Culture. Journal of Business Ethics, 139(3), 551–561. https://doi.org/10.1007/s10551-015-2659-4
Bona-sánchez, C., Fernández-senra, C. L., & Pérez-alemán, J. (2016). value. BRQ Business Research Quartely, 20(1), 11–21. https://doi.org/10.1016/j.brq.2016.07.002
Cao, C., Xia, C., & Chan, K. C. (2016). Social trust and stock price crash risk: Evidence from China. International Review of Economics and Finance, 46(September 2015), 148–165. https://doi.org/10.1016/j.iref.2016.09.003
Carlo, E. Di. (2014). Related party transactions and separation between control and direction in business groups : the Italian case. Corporate Governance, 14(1), 58–85. https://doi.org/10.1108/CG-02-2012-0005
Chen, S., Wang, K., & Li, X. (2012). Product market competition , ultimate controlling structure and related party transactions. China Journal of Accounting Research, 5(4), 293–306. https://doi.org/10.1016/j.cjar.2012.11.001
Cheung, Y., Rau, P. R., & Stouraitis, A. (2006). Tunneling , propping , and expropriation : evidence from connected party transactions in Hong Kong $. Journal of Financial Economics, 82(9040938), 343–386. https://doi.org/10.1016/j.jfineco.2004.08.012
Cuevas-rodríguez, G., Gomez-mejia, L. R., & Wiseman, R. M. (2012). Has Agency Theory Run its Course ?: Making the Theory more Flexible to Inform the Management of Reward Systems. Corporate Governance: An International Review, 20(6), 526–546. https://doi.org/10.1111/corg.12004
Damayanti, I. G. A. E. (2019). Fenomena Faktor yang Mempengaruhi Nilai Perusahaan. Jurnal Ilmiah Akuntansi Dan Bisnis, 14(2), 208–218. https://doi.org/https://doi.org/10.24843/JIAB.2019.v14.i02.p06 Jurnal
De Jong, B. A., & Elfring, T. (2010). HOW DOES TRUST AFFECT THE PERFORMANCE OF ONGOING TEAMS ? THE MEDIATING ROLE OF REFLEXIVITY , MONITORING , AND EFFORT. Academy of Management Journal, 53(3), 535–549.
Diab, A. A., & Aboud, A. (2019). The impact of related party transactions on fi rm value Evidence from a developing country. Journal of Financial Reporting and Accounting, 17(3), 571–588. https://doi.org/10.1108/JFRA-08-2018-0064
Downs, D. H., Ooi, J. T. L., Wong, W., & Ong, S. E. (2015). Related Party Transactions and Firm Value : Evidence from Property Markets in Hong Kong , Malaysia and Singapore. The Journal of Real Estate Finance and Economics, 52(4), 408–427. https://doi.org/10.1007/s11146-015-9509-0
Elkelish, W. W. (2017). Journal of Accounting in Emerging Economies. Journal of Accounting in Emerging Economies, 7. https://doi.org/http://dx.doi.org/10.1108/JAEE-05-2015-0035
Goergen, M., Chahine, S., Brewster, C., & Wood, G. (2013). Trust , Owner Rights , Employee Rights and Firm Performance. Journal oF Business Finance & Accounting, 40(July), 589–619. https://doi.org/10.1111/jbfa.12033
Gras-gil, E., Manzano, M. P., & Fernández, J. H. (2016). Investigating the relationship between corporate social from Spain. Cuadernos de Economía y Dirección de La Empresa, 19(4), 289–299. https://doi.org/10.1016/j.brq.2016.02.002
Guay, W., Samuels, D., & Taylor, D. (2016). Author ’ s Accepted Manuscript. Journal of Accounting and Economics, 62(2–3), 234–269. https://doi.org/10.1016/j.jacceco.2016.09.001
Hendratama, T. D., & Barokah, Z. (2020). Related party transactions and firm value : The moderating role of corporate social responsibility reporting. China Journal of Accounting Research, 13(2), 223–236. https://doi.org/10.1016/j.cjar.2020.04.002
Jian, M., & Wong T. J. (2010). Propping through related party transactions. Review of Accounting Studies, 15(1), 70–105. https://doi.org/10.1007/s11142-008-9081-4
Kuan, L., Tower, G., Rusmin, & Zahn, J.-L. W. M. Van der. (2010). Related party transactions and earnings management. Jurnal Akuntansi Dan Auditing Indonesia, 14(2).
Loughran, T., & Mcdonald, B. (2014). Measuring Readability in Financial Disclosures. Journal of Finance, 69(4), 1643–1671.
Obermann, J., Velte, P., Gerwanski, J., & Kordsachia, O. (2020). Mutualistic symbiosis ? through behavioral characteristics. Management Research Review, 43(8), 989–1011. https://doi.org/10.1108/MRR-07-2019-0317
Perryman, A. A., Fernando, G. D., & Tripathy, A. (2015). Do gender differences persist ? An examination of gender diversity on fi rm performance , risk , and executive compensation. Journal of Business Research, 69(2), 579–586. https://doi.org/10.1016/j.jbusres.2015.05.013
Pozzoli, M., Venuti, M., & Parthenope, N. (2014). Related Party Transactions and Financial Performance : Is There a Correlation ? Empirical Evidence from Italian Listed Companies. Open Journal of Accounting, 2014(January), 28–37. https://doi.org/DOI:10.4236/ojacct.2014.31004
Qiu, B., Yu, J., & Zhang, K. (2019). Trust and Stock Price Synchronicity : Evidence from China. Journal of Business Ethics, (1988), 1–13. https://doi.org/10.1007/s10551-019-04156-1
Scholtens, B., & Kang, F. (2012). Corporate Social Responsibility and Earnings Management: Evidence from Asian Economies. Corporate Social Responsibility and Environmental, 20(2), 95–112. https://doi.org/10.1002/csr.1286
Shin, I. H., Sohn, S. K., & Park, S. (2019). Related party transactions and income smoothing : new evidence from Korea. Asia-Pacific Journal of Accounting & Economics, 00(00), 1–18. https://doi.org/10.1080/16081625.2019.1566011
Singh, S., Tabassum, N., & Darwish, T. K. (2017). Corporate Governance and Tobin ’ s Q as a Measure of Organizational Performance. British Journal of Management, 00, 1–20. https://doi.org/10.1111/1467-8551.12237
Sousa-lima, M., Michel, J. W., & Caetano, A. (2013). Clarifying the importance of trust in organizations as a component of effective work relationships. Journal of Applied Social Psychology, 43, 418–427. https://doi.org/10.1111/j.1559-1816.2013.01012.x
Tambunan, M. E., Siregar, H., & Manurung, A. H. (2017). Related Party Transactions and Firm Value in the Business Groups in the Indonesia Stock Exchange. Journal of Applied Finance & Banking, 7(3), 1–20.
Thenmozhi, M., & Sasidharan, A. (2020). Does board independence enhance fi rm value of state-owned enterprises ? Evidence from India and China. European Business Review. https://doi.org/10.1108/EBR-09-2019-0224
Wang, W. K., & Lu, W. M. (2019). Related ‐ party transactions and corporate performance following the adoption of International Financial Reporting Standards in Taiwan. Journal of Business Research, 101(October), 411–425. https://doi.org/10.1002/mde.3106
Whelan, J., & Demangeot, C. (2015). Signallinging Theory. Wiley Encyclopedia of Management.
Wong, R. M. K., & Kim, J. (2015). Are Related-Party Sales Value-Adding or Value-Destroying ? Evidence from China. Journal of International Financial Management & Accounting, 26(1), 1–38.
Xu, Q., Fernando, G. D., & Tam, K. (2019). Advances in Accounting Trust and firm performance : A bi-directional study. Advances in Accounting, 47, 100433. https://doi.org/10.1016/j.adiac.2019.100433
Published
2022-07-27
How to Cite
RAMADHANI, Raihan; DIANTIMALA, Yossi; ARFAN, Muhammad.
The Effect of Trust and Related Party Transaction on Firm Value.
Jurnal Ilmiah Akuntansi dan Bisnis, [S.l.], v. 17, n. 2, p. 333-344, july 2022.
ISSN 2303-1018.
Available at: <https://ojs.unud.ac.id/index.php/jiab/article/view/87027>. Date accessed: 27 apr. 2024.
doi: https://doi.org/10.24843/JIAB.2022.v17.i02.p10.
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