The Mediating Effect of annual financial statements` comparability on the Relationship between related party transactions and audit fees: Evidence from companies listed in the Egyptian stock exchange

The research aims to analyze and test the direct & indirect effects of related party transactions on audit fees through the comparability of financial statements as a mediator variable. An empirical study was used to test research hypotheses on a sample of 75 listed companies in the Egyptian stock market, during the period from 2016 to 2019. The total number of observations was 284 observations (company – year). Research hypotheses have been tested, sensitivity, and additional analyses are conducted using estimated regression models and path analysis.
The author has found that, there is a significant positive relationship between related party transactions and audit fees. In addition to a significant negative relationship between related party transactions and comparability of financial statements. Additionally, there is a significant negative relationship between the comparability of financial statements and audit fees. Comparability of financial statements mediates the relationship between related party transactions and audit fees.
The results of testing research hypotheses are robust to the alternative measure of related party transactions. But in case of an alternative measure of the financial statements` comparability the results have revealed an insignificant relationship between this comparability and audit fees, in addition to failure of comparability to mediate the relationship between related party transactions and audit fees. Additionally, in case of using an alternative measure for audit fees, the relationship between comparability and audit fees was insignificant, and comparability has failed to mediate the significant relationship between related party transactions and audit fees.
The paper has been responded to previous calls to investigate the effect of certain types of related party transactions (Sales & purchase) with different natures on audit fees. The results of this additional or supplemental analysis has revealed a significant positive (negative) relationship between sales transactions to related parties and audit fees (comparability of financial statements). In addition to a significant negative relationship between the comparability of financial statements and audit fees. Additionally, comparability mediates the relationship between sales transactions to related parties and audit fees. In the other hand purchase transactions from related parties has an insignificant relationship with audit fees. The additional analysis has found significant positive (negative) relationship between related party transactions (financial statements’ comparability) and abnormal audit fees. Financial statements’ comparability mediates the relationship between related party transactions and the abnormal audit fees.