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53
臺大管理論叢
第
28
卷第
2
期
group are unlikely to stop related party transactions in the group simply because these
transactions may bring about lawsuits. More importantly, the identification of and
monitoring for any abnormal related party transactions should be watched appropriately.
This study finds that audit quality of the firm that audits the group is essential in
determining whether related party transactions affect earning persistence. In other words,
whether the auditor can be effectively monitoring related party transactions is an
important factor of the group’s conduct with related party transactions to manipulate
earnings.
The results of this study complement the current literature with regard to the
discussion of related party transactions use for the manipulation of earnings as well as to
provide implications for policy regulations for auditing group financial statements.
2. Research Design
This study obtains empirical data of the publicly traded companies in Taiwan from
the Taiwan Economical Journal data bank from 1996 to 2011, for a total of 17 years. We
excluded groups with only one component; industries with special practices and
characteristics such as banking, securities, and insurance companies; companies with
incomplete information on related party transactions; and samples with incomplete
variables. There are 8,345 sample companies (components) available for analysis.
Furthermore, this study discusses the effects related party transactions have on earnings
persistence to determine whether affiliated business groups have utilized improper related
party transactions to manipulate financial reporting. When a group’s auditor (dis) inhibits
the group from manipulating earnings via inappropriate related party transactions, such
transactions will (not) lower earnings persistence. This study investigates whether a group
has possessed related party transactions by the existence of revenues or costs from related
party transactions outside regular business operations.
3. Findings
This study found conclusively that most affiliated business groups still engage
different audit firms and auditors may not fully understand the content and characteristics
of the related party transactions. Thus, they are not able to effectively inhibit the group
from manipulating earnings reporting via related party transactions. Hence, related party
transactions of the group have the ability to decrease earnings persistence. Yet, when a