Board Compensation and Related Party Transactions: Evidence from Iran

This paper investigates the effect of related party transactions (RPTs) onboard compensation in Iran. The study population consists of 870 observations and 145 companies listed on the Tehran Stock Exchange (TSE), over six years from 2012 to 2017.Our evidence demonstrated that total transactions with other related parties are associated with board compensation. This lends support to the conjecture that managers tend to manipulate earnings, and consequently, adjust their rewards through non-routine transactions with related parties. We also find that using total purchase and sale transactions, loans, and guaranteeing of other related parties is a method of reward-enhancing in an indirect way. Finally, our outcomes suggest that market competitiveness has no impact on compensation in the presence of both normal and abnormal RPTs.This study provides some policy implications concerning legislators' focuses on related party transactions by documenting that not all types of RPT carry similar fraud risk. Our study offers some preliminary insight into how different categories of RPTs may be used as manipulation leverage.

Keywords: Related Party Transaction(RPT),Board Compensation, TSE, Iran.