The impact of related party transactions on earnings management: some insights from the Italian context

Related party transactions have become a key issue as a result of recent financial scandals. This study examines whether firms use related party transactions for earnings management, and then, whether they try to minimize detection through the format of related party transactions disclosure. Firstly, we analyze the association between related party transactions structure (types and parties involved) and the probability of reporting small earnings increase. Related party transactions may have significant impact on, and implications for, earnings management. According to the agency theory, related party transactions are used opportunistically, while the efficient transaction hypothesis argues that related party transactions meet the economic needs of the business. We next investigate the association between the probability of reporting small earnings increases through related party transactions and disclosure quality. Disclosure quality should be studied in relation to impression management and investor attention; this approach takes account of the idea that earnings management behavior may influence the quality of disclosure as a possible way of lowering conflict of interest. In line with the agency theory, our findings show that revenue related party transactions are more likely to be used to manage earnings than other types of transaction; related party transactions with ultimate parents are associated with lower probability of reporting small earnings increases compared to operations with other related parties. Lastly, our results confirm that the decision to engage in earnings management is related to lower disclosure quality.     

Receptivity to Change in a General Medical Practice

In this paper, Pettigrew, Ferlie and McKee's concepts of receptive and non receptive contexts for change are examined using data from an evaluation study of a general medical practice implementing a Personal Medical Services Pilot between 1998 and 2001. Four questions concerning the applicability, associatedness, temporality and dynamism of the eight factors Pettigrew et al. identified as constitutive of receptivity are used in the analysis, which extends the original model through an operationalization yielding 21 ‘focal questions’. Although the process of change at the fieldwork site was stalled, the receptivity model is shown to have been a useful tool in identifying the factors blocking change. The analysis shows that when the eight factors are conceptualized in terms of the strength, direction and continuity of their influence, the receptivity metaphor provides a distinctive tool for the analysis of change. The paper concludes that further refinement of the model could provide a basis for the derivation of change management typologies.