THE EFFECT OF POLITICAL CONNECTIONS ON AUDITOR CHOICE AND RELATED PARTY TRANSACTIONS

Saeed BAZRAFSHAN
Hamze HESARI

ABSTRACT

Financial reporting quality is a vital element in optimal allocation of resources and formation of proper economic decisions. Factors affecting the choice of an independent auditor and performing Related Party Transactions (RPTs) can affect the quality of financial reporting. The purpose of this study was to examine whether the political connections (PCs) of companies affect the relationship between (AC) and RPTs. For this purpose, 53 companies were selected among the companies listed on Tehran Stock Exchange for the period 2011-2016. Given the complexity of the research model, Smart-PLS software was used for data analysis. The results showed a positive and significant relationship between the PCs of companies and RPTs. The results indicated that PCs of the companies had no significant relationships with AC. Moreover, the results showed that given the reverse and significant relationship between RPTs and AC, PCs would reduce the severity of the reverse relationship, but its effect was not significant.

Keywords: Auditor Choice , Political Connections , Related Party Transactions

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