Open AccessAbnormal Related Party Transactions, Political Connection, and Firm Value: Evidence from Indonesian Firms
Author(s) -
Supatmi Supatmi,
Sutrisno Sutrisno,
Erwin Saraswati,
Bambang Purnomosidhi
Publication year - 2021
Publication title -
international journal of business and society
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.236
H-Index - 15
ISSN - 1511-6670
DOI - 10.33736/ijbs.3189.2021
Subject(s) - accounts receivable , enterprise value , politics , accounts payable , panel data , stock exchange , moderation , value (mathematics) , indonesian , agency cost , business , economics , monetary economics , accounting , finance , econometrics , political science , corporate governance , psychology , statistics , social psychology , linguistics , philosophy , mathematics , law , payment , shareholder
This study aims to examine the effect of abnormal related party transactions (RPTs) on firm value and to investigate political connections as a moderator of the causal relationship. Our sample is 450 Indonesian firms listed at the Indonesia Stock Exchange during the period of 2014–2017 with a total of 1,724 firm-year observations. Based on the panel data regression test, our results demonstrate that abnormal RPTs, especially account receivables-related RPTs and account payables-related RPTs, decrease firm value. Further, the results empirically show that political connections negatively affect firm value. Political connections strengthen the effects of abnormal non-account receivable RPT assets and abnormal non-account payable RPT liabilities on firm value. Our findings imply that agency theory explains the impacts of political connections of Indonesian firms better than resource dependence theory.