Skip to main content

Do related party transactions affect the relationship between political connections and firm value? Evidence from Egypt


This paper aims to (i) investigate the impact of political connections (PC) and related party transactions (RPTs) on the firm value (FV), and (ii) test the moderating effect of RPTs on such relationship, while controlling for the firms’ corporate governance mechanisms. Based on 315 observations from publicly listed firms in Egypt, our results reveal that (i) there is a positive relationship between PC and the FV, (ii) there is a negative relationship between RPTs and the FV, and (iii) the existing of RPTs as a moderating variable enhances the impact of the politically connected companies on the FV. The findings suggest that the Egyptian firms are much affected by the politically connected board of directors or owners, and this significantly exists when associated with related party transactions, despite that, the corporate governance practices could mitigate such effects.


Despite the gap in the literature due to the lack of a formal, comprehensive and holistic definition of what PC means, generally, it is defined as a social relation to gain power [69]. For example, Fisman [24] and Wei et al. [68] defined PC as the links between business leaders and political representatives such as senior government, party leaders, governmental officials, or elected legislators. Faccio [22] defined political connections as a distinctive connection between firm officials and legislators. According to Du and Luo [17], political connections may be created in the following ways: donating to political actions, hiring previous government officials as directors, or having firm executives serve in a political position.

If one or more of the major shareholders in the company controls 10% or more of the votes, or if CEO, vice president, president, chairman of the board of directors, or a secretary, or there is a link between a member of parliament, a minister, or a senior politician in an institution under governmental control, then, the company is politically connected [17, 22]. Furthermore, if any of the top managers, members of the board of directors, and major shareholders have social ties business ties, or family ties to decision-making bodies of the government (e.g., executive parliament and judicial bodies) or themselves are members of the government, the firm considered to be politically connected [26, 28].

The PC allows for easier access to valuable resources and strategic advantages, which can lead to improved firm performance. Prior research has found that the PC can benefit the firm in terms of better credit access, the possibility of winning a government bidding war and lower tax rates. Given the importance of PC in firm growth and corporate strategies in emerging economies, it is worthwhile to explore whether and how PC influence firm performance in emerging markets. [2, 34, 58].

There are two different arguments related to the advantages versus the adverse role of PC. The first argument is related to how PC can enhance the firm’s financial performance, where some studies, such as Infante and Piazza [36], explain the extent to which politically connected companies benefit from low interest rates at the local level, and how these preferential transactions are strengthened when companies associated with politicians on their boards borrow from banks and when the degree of autonomy granted to local loan officers is higher. On the other hand, the second argument is related to mitigating the financial performance; for example, Pang and Wang [52] state that PC can cause multiple interagency conflicts as politicians and government attempt to impose their control as stakeholders at the expense of other stakeholders.

Pang and Wang [52], Sniderman and Theriault [59], Li et al. [42] mentioned that despite the multiplicity of studies examining the impact of the PC on the firm performance in many countries, the global effects of it are still ambiguous. The advantages versus the adverse role of the PC are two opposing arguments. Both considerations indicate that the magnifying or mitigating financial performance may have opposing consequences of PC. Resource-based and supporting manual theory suggests that the PC facilitates the company’s ability to produce advantages that increase the performance. The PC is proposed to help organizations achieving their goals, protect firms’ reputations and provide better financial reporting quality.

Prior studies have been carried out in different emerging economics to examine the effect of PC on the FV and the firm performance, as Ben Cheikh and Loukil [8] in Tunisia, Artunç and Salah [4] in Egypt, Ghonji Feshki et al. [25] in Tehran, Maaloul et al. [45] in Tunisia, where the empirical results reveal that the PC has a positive effect on both the firm performance and the FV. Overall, the review of the literature reveals that politically connected companies have better financial performance. In addition, other scholars stipulate that the establishment of PC helps businesses to raise sales, reduce operational and finance costs, which can favorably reflect the performance of businesses [41, 60, 67, 71]. Accordingly, the CG mechanisms may be expected to dilute the adverse effect of PC on the company in the presence of good board of directors [48, 63].

RPTs, on the other hand, are the subject of two competing viewpoints. An insider’s opportunistic assessment of RPT’s performance, which may be detrimental to other shareholders, is the first thing to consider [13, 27, 39]. The second point of view considers RPTs as competent and capable of providing benefits to enterprises in the form of a streamlined negotiating process, lower transaction costs [27], risk sharing, strategic cooperation, and contract facilitation [39].

It is also not always clear how RPTs would affect a company’s performance, though; studies indicated that RPTs can make a company less profitable, on the one hand (for example, [49, 66]). On the other hand, other studies found that RPTs had a positive effect on people [53, 64]. There are very few studies that have looked into this relationship in Egypt. Diab et al. [14] looked at how RPTs changed the value of Egyptian publicly traded companies from 2012 to 2017 and how that changed the value of the companies. The results revealed that RPTs do not have an impact on the value of a company’s stock. There is also no evidence that RPTs improve the performance of a company. In Malaysia, Liew and Devi [43] look at how long independent directors stay on the board and how that affects the link between RPTs and FV over the course of five years from 2014. The results suggested that IDT weakens the link between RPTs and the value of the company. In this case, more ownership makes that effect of IDT even more powerful.

It can be noted that some studies provide evidence that political connections are more common in countries with less protected property rights, a high level of corruption and a poor legal and institutional protection. In addition, political connection consequences may be influenced by political instability in these countries [8].

The current study extends empirical studies in developing countries and provides further in-depth investigation regarding one of those countries, Egypt, where the culture, economic policies and politics power are playing a substantial role in shaping the decision-making process, which in turn, affecting the firm performance. Hence, Egypt offers an interesting research context to test these propositions. Previous studies as Ben Cheikh and Loukil [8] addressed the interaction between RPTs, PC and firm performance in Tunisian context, but they do not control for a wide spectrum of CG mechanisms. Abdel-Fattah et al. [1] used a sample of 33 companies listed on the Egyptian stock Exchange to examine the relation between PC, RPTs and VF during the period of 2014 to 2018; hence, the current study extends the above-mentioned literature by examining the relation between the PC, RPTs and the FV with the existence of corporate governance as control variables, where CG helps in supervising the effect of the PC and RPTs on FV.

This paper has a number of contributions. Firstly, it investigates the effect of PC, RPTs on VF as well as the moderating effect of RPTs on the relationship between PC and FV while controlling for the BOD characteristics. Secondly, it covers a longer period than any previous study in Egypt has used; where a larger sample of listed companies to be used. Thirdly, the findings would benefit the policymakers and the Egyptian Stock Exchange Authority as it draws the attention on the role played by the PC across the firms and its impact on the firms’ value, and how this role is enhanced when controlling for the CG and the RPTs.


Development of hypotheses

PC and FV

The PC is one of the topics that is subject for discussion in the academic research [12, 70]. Krueger [40] stated that, Corporations spend a great deal of time, energy, and resources in seeking to enter government services because of large, unexpected gains. Although building PC is considered essential, especially in developing countries, they can lead to a high level of corruption and can lead to suffering from a weak legal system [3, 68].

Generally, the PC is characterized as a social relation in order to achieve political influence [69]. However, the literature does not agree on a definition. Fisman [24] and Wei et al. [68] described PC as the linkages between corporate executives and political representatives, such as senior government, political party leaders, governmental officials, and elected legislators. There are significant ties between corporate officials and politicians, according to [22]. For example, Du and Luo [17] claim that the PC of corporations may be developed by making political donations, recruiting former government officials as directors, or having company executives participate in a political position.

Firms may need to establish relationships with politicians and government officials in order to accomplish their social aims. Efficient management must strike a balance between stockholders’ interests and those of other politically connected parties. PC is defined as the social or commercial interaction between a corporation and politicians in order to achieve power.

There are two main theories to explain the controversial results of the relationship between PC and FV. The first theory states that PC is providing a “helping hand” to enhance the firm’s value by enabling them to acquire scare resources and giving protection to the firm, especially in developing countries [7, 23, 67]. On the other hand, some studies suggest that PC is acting as “grabbing hand,” where it can direct the company to politically connected individuals’ agenda and to support their own self-interest. Where in some cases PC can force the company to be engaged in more social activities or to find specific programs that may act away from the main objective of the company and the shareholders to maximize their wealth and the value of the firm [44, 50]. The second theory emphasizes different impacts of PC on FV due to the nature, the different political and regulatory systems and the culture of the countries used in the study [20].

Prior studies showed that there is an important impact of PC on the FV; for example, most of the studies conducted in China showed that there is an important impact of PC on the FV; where the politically connected firms are having access to bank loans, obtaining tax benefits and acquisition of scare resources. That is why most of the studies agreed that China’s society gives a great appreciation to relationships and connections [12].

Chekir and Diwan [11] investigated the impact of politically connected firms versus non-politically connected firms in Egypt during the period of 2007 to 2011. The study explains the benefit that firms can obtain from being politically connected using data from all the companies listed on EGX 100. The results revealed that connected companies are more able to get loans from banks, have more market access, trade protection and energy subsidies.

The current study is looking at how the PC and FV are linked with the presence of CG as a control variable. We believe that CGM helps in supervising the adverse effect of the PC which was not addressed in Egyptian previous studies. Based on the above discussion, the first hypothesis can be formulated:


There is a significant positive relationship between PC and FV.

RPTs and FV

The collapse of worldwide companies as Enron (2001), WorldCom (2002), and Tyco (2002) revealed the importance of the RPTs, especially after many financial crises, where the role of RPTs has emerged in all political and economic discussions and media [55, 63]. Accordingly, many academic studies and professional organizations paid attention to the importance of these transactions and to the requirements of disclosure.

Many guidelines and standards have been released to handle this issue with the main purpose of ensuring that the person who makes the disclosure reflects the financial position of the firm without being affected by those transactions or relationships, and also by identifying related parties and their dealings with them and the requirements of disclosure. Furthermore, International Accounting Standards, IAS 24 [37], defined the RPTs as a transfer of resources, services or obligations between related parties, regardless of whether a price is charged (IAS 24, paragraph 9; [56]). Thus, a related party can be considered a person or an entity, where that person relates to the reporting entity or has a significant influence or control or is a member of management. RPTs involve transactions with close family members of a related person [51, 56].

Most of the previous literature illustrate that RPTs are transactions between two parties that are joined by a special relationship, such as the parent company and subsidiaries, the directors or management of the company and its subsidiaries, or their family members [6]. Bona-Sánchez et al. [9] classified RPTs according to two criteria: (1) the parties involved in the transactions and (2) the nature of transactions. The first criterion includes (a) controlling shareholders, (b) managers and officers, and (c) affiliates. The second criterion includes eight RPTs variables: financial income, financial expenses, operating income, operating expenses, possession of non-financial asset acquisitions, lending contracts, borrowing contracts and loan guarantees. Tambunan et al. [62] indicates that RPTs of transactions undertaken to overcome weak CGM and insufficient disclosure that leads to market failures and weak oversight in companies and business groups.

In Egypt, rules of registration and cancellation of securities on the stock exchange issued in 21 March 2021, Art No (4) define related party as any party has any direct or indirect relationship with the reporting entity in one of the following cases: (l) control or joint control over the reporting entity, (2) shares ownership or voting rights grants the party ability to effectively influence the decisions of the reporting entity, (3) membership of key management or the position of executive director of the entity requesting registration or in its holding company or in one of its subsidiaries or associates, (4) any person has control or joint control or the direct effect of persons have shares or voting rights that give them the ability to influence entity’s decisions, and (5) the related party has an independent system for benefits or pensions of the employees of the reporting entity or any entity related to the reporting entity. Therefore, RPTs can be viewed as a group of transactions between companies in the same business group to raise the efficiency of transactions in weak markets, where RPTs can be applied to expropriate the minority shares through tunneling or managing earnings profits.

Several factors, including corporate actions, influence FV. Companies engage in a variety of activities to improve operational efficiency, including (RPTs) and tax avoidance (TA). Previous research has found inconsistencies in whether these actions have a positive or negative impact on FV. Most of the stakeholder’s constituents are considering the related party transaction as a risky action by the management and that it can affect the FV negatively. The literature provides non-conclusive results on the impact of the RPTs on the firm performance in general and on FV in particular [54, 55].

El-Helaly et al. [21] investigated the effect of RPTs disclosure on FV in the Egyptian market for the year 2014. The study used two proxies for RPTs, which are type and the size of the RPTs. The results show that there is negative non-significant relationship between RPTs and FV. Kassem [38] proposed a framework for RPTs and investigated its impact on investor’s decision and information asymmetry. The results reveal that the current employed disclosure framework is not sufficient for showing the risk associated with the abusive RPTs and recommended the use of a proposed disclosure framework to enhance the investor’s decision and the information asymmetry, which by default will enhance the value of the firm.

The current study uses the CGM as one of the control variables to examine its effectiveness in oversight the adverse effect of the RPTs. The CGM existence and its effect on the relationship between PC and FV was not examined before in prior literature related to the Egyptian context.

Based on the above discussion, the following hypotheses can be formulated:


There is a significant negative relationship between RPTs and FV.

The effect of RPTs on the relationship between the PC and FV

Egyptian listed companies are governed by the accounting standards which seeks reporting quality which in turn may lead to the disclosure of RPT. The demand and supply perspectives can explain the possible effects of RPT on the FV, where BOD characteristics may increase CG efficiency and require more audit effort to guarantee high monitoring, and that may require additional audit procedures, which increase the VF. Also, according to the resource dependence theory, the board gender increases the board efficiency in dealing with audit matters which may reduce the audit report lag and increase the FV [18]. Therefore, it is predicted that RPT may affect the relationship between PC and VF; hence, the third hypothesis is as follows:


RPTs moderate the relationship between the PC and the FV.

Research variables and models

This study aims to investigate the effect of PC and RPTs on FV, as well as, to test the moderating effect of RPTs on the relationship between PC and FV. PC and RPTs were measured using a binary scale. A dummy variable equals (1) if the firm is politically connected and (0) otherwise as well as a value of (1) is assigned when the company has RPTs in financial statements and (0) otherwise [14, 69]. Additionally, some control variables were selected based on the literature related to PC and RPTs, such as CG variables (CEO gender, CEO duality, CEO expertise, board size) as well as other control variables as firm size, audit quality, profitability and leverage [15, 19, 33, 47, 57]. Table 1 summarizes the variables and measurements.

Table 1 The study variables

Accordingly, this paper formulated the relationship between the variables as the three models below:

Model (1): The relationship between PC and FV

Firm Value = α + β1 Political connection + β2 CEO gender + β3 Board size + β4 CEO Duality + β5CEO Expertise + β6 Leverage + βit β7 Profitability + β8 Firm size + β9 Audit quality + e.

Model (2): The relationship between RPTs and FV

Firm Value = α + β1 Related parties transactions + β2 CEO gender + β3 Board size + β4CEO Duality + β5 CEO Expertise + β6 Leverage + β7 Profitability + β8 Firm size + β9 Audit quality + e.

Model (3): The moderation effect of RPTs on the relationship between PC and FV

Firm Value = α + β1 Political connection + β2 Related parties transactions + β3Related party*political connection + β4CEO gender + β5 Board size + β6CEO Duality + β7 CEO Expertise + β8 Leverage + β9 Profitability + β 10 Firm size + β 11 Audit quality + e.

Sample selection

The population of this study is the Egyptian listed companies (EGX100), who are required to comply with the Egyptian accounting standards and requested to disclose information on RPTs. Banks and financial services companies are excluded from the sample, since, their capital structures differ significantly from the other industries, and they have their own characteristics, regulations and specific disclosure requirements. Data were extracted from the financial reports for the sample firms from 2014 to 2020. Firms with missing data were excluded. The final sample consists of 45 listed Egyptian firms with total observations of 315. The data required to empirically test the hypotheses are collected using two sources as follows: (i) Thomson Reuter—Eikon Database to collect annual financial and (ii) the Egyptian Stock Exchange website to obtain annual board of director’s reports. Table 2 shows details of the sample selection:

Table 2 Sample selection

Data analysis and discussion of results

Descriptive analysis

Table 3 shows the descriptive statistics of the following variables: PC, RPTs, board of directors’ characteristics (CEO gender, CEO duality, board size, and board expertise), profitability, audit quality, leverage, and FV (Tobin’s Q).

Table 3 Descriptive statistics of the research variables

The results of descriptive analysis show the high level of women in the board of directors as the percentage can reach 40% in board size above 20 members. It is expected that this would affect the disclosure RPTs; where women are more conservative in complying with the standards requirements. Additionally, the results reveal that the PC and RPTs exist in more than 40% of the sample as the mean of both variables is above 40%; and consequently this might affect the firm value. The CEO plays dual role in the majority of the sample companies. The boards in companies include members with financial expertise, and the results reveal that 63.7% of the financial reports included in the sample are audited by Big-4, the net profit represents 8% of the total assets. The negative value of profitability can be explained by the high level of leverage. The results suggest that the averages of the size of the firm and TQ are 6.17 and 1.51, respectively.

Regression results of the impact of political connections and related party transactions on firm value

The regression analysis has been conducted to examine the impact of the PC on the FV without taking RPTs into considerations. Table 4-Panel (A) indicates that regression of independent variables (PC) and control variables (board characteristics, firm size, profitability, audit quality and leverages) on the dependent variable (FV). It can be concluded that the impact of PC on FV is significant at a level less than (0.05) and the coefficient is (0.416). The adjusted R2 is 15%, which means that the variables are explaining 15% of the variability in the dependent variable. Board size and profitability showed insignificant impact on the dependent variable (FV) at levels higher than (0.05) and (0.01). Those results are in line with previous studies that conclude that the stable and strong PC has a positive impact on the performance of the firm, especially on its market value [8, 10, 35, 69]. Based on our results, the first hypothesis is to be accepted.

Table 4 Regression results

Table 4-Panel (B) shows the regression analysis results of the impact of RPTs on the FV without considering the impact of the PC. It regresses the independent variable (RPTs) and control variables (board characteristics, firm size, profitability, audit quality and leverages) on the dependent variable (FV). The RPTs have a negative impact on FV that is significant at a level less than (0.01) and the coefficient is (− 0.483). The adjusted R2 is 16%, which means that the variables are explaining 16% of the variability in the dependent variable. CEO gender, board size and profitability showed insignificant impact on the dependent variable (FV) at levels higher than 0.05 and 0.01.

The results are consistent with the findings of many previous studies, where a negative relationship between RPTs and the FV exists. It can be noted that the R2 value is small compared to its value in prior studies; this is due to the fact that the CG mechanism taken in this paper as a control variable which in turn helped in mitigating the negative effect of RPTs [8, 16, 32, 65]. Conversely, there are studies which show that an increase in the RPTs leads to greater profitability, as in the study by [56].

The results show that the gender diversity and board experience have a positive impact on the FV on the contrary to the negative impact of CEO Duality and board size. Regarding the rest of the control variables as the firm size and the audit quality, the results show a positive impact on the FV, while leverage shows a negative impact on the FV. Altogether, this means that higher firm size and profitability with good CG are boosting the value of the firm in the stock exchange market despite the negative impact of the RPTs. Based on the above results, the second hypothesis is accepted.

Regression analysis of the impact of political connections on the firm value using related party transactions as a moderating variable

Table 5 shows the regression analysis results of the effect of PC on the FV considering the moderating impact of the RPTs. It regresses the independent variable (PC) and control variables (board characteristics, firm size, profitability, audit quality and leverages) on the dependent variable (FV), taking into consideration the moderating role of the RPTs. The impact of RPTs on the relationship between PC and FV is significant at a level less than (0.01), and the coefficient is (−0.590). The adjusted R2 is 17.5%, which means that the moderating role of RPTs is explaining 17.5% of the variability in the dependent variable. Board size and profitability showed insignificant impact on the dependent variable (FV) at levels higher than 0.05 and 0.01.

Table 5 Regression results of the impact of political connections on the firm value using related party as a moderating variable

The results are consistent with the findings of many previous studies, where a negative relationship between the RPTs and the FV exists. When compared to previous research, this study’s R2 value is low, but this is because the CG mechanism was used as a control variable, which helped to mitigate the detrimental effects of RPTs [57, 61]. Hence, the third hypothesis is accepted where RPTs moderate the relationship between the PC and the FV.

Robustness test

There is a need to carry out robustness test to address the issue of endogeneity to eliminate the unobserved impact of any constant and estimate the problems of endogeneity; hence, the two-stage-least squares (2SLS) method is employed. Additionally, the structure Equation Modeling (SEM) is used to retest the relationship between PC and FV with considering the RPTs as a moderator variable as follows:


Errors in the dependent variable are assumed to be independent of the predictor variable in standard linear regression models. OLS linear regression is no longer best when the associations between variables are bidirectional (e.g., in a linear regression model). Instrumental variables that are uncorrelated with the error terms are used to compute estimated values of the problematic predictors (the first stage) and then used to construct a linear regression model of the dependent variable (the second stage). For optimal outcomes, the two-stage model employs variables that are uncorrelated with mistakes to compute the values.

Following Maaloul et al. [45] and Habib et al. [29], we employ the two-stage-least squares (2SLS) method to account for the potential problem of endogeneity between PC, RPTs and FV. Hence, The PC and RPTs as a direct effect and the PC*RPTs (Moderating effect) are estimated in the first step of the 2SLS technique using exogenous and instrumental variables for CG (board characteristics) and other control variables (firm size, audit quality, profitability, and leverage). Secondly, the projected worth of PC and RPTs are linked to the firm value.

The results of Table 6 reveal that RPTs has a moderating effect on the relationship between PC and FV. The regression model shows that the direct and the indirect effect of the PC, RPTs and FV are valid and significant at P values less than 0.01and 0.05. This indicated the robustness of the linear regression results that PC has a significant impact on FV taking into consideration the moderating role of the RPTs.

Table 6 Two-stage least squares (2SLS) regression analysis

We conclude that the RPTs the moderating effect on the relationship between PC and FV is the same regardless the employment of 2SLS or OLS. Thus, these results reveal the absence of endogeneity problem and the absence of variables that could bias the relationship between the PC and FV.


SEM is chosen to be used in this paper as it calculates the numerous and interlinked dependency among variables (endogenous and exogenous variables) and to be in line with Supatmi et al. [61] and Ika et al. [35]. We test the impact of the PC on the FV using the RPTs as a moderating variable to retest the third hypothesis. The results of the analysis are illustrated in Table 7 which indicates that the mediation role of the RPTs is significant at a level less than 0.05. On the other hand, the results showed that board size and profitability are not significant in that model.

Table 7 Regression weights of SEM (political connections and firm value using the related party transactions as a moderating variable)

Hypothesis 3 represents the moderating role of RPTs on the relation between PC and the FV. The results of the SEM models show that the explanatory power of the model increased when the moderating role inserted in the model. This means that the consideration of the RPTs within this relation is essential to understand the true impact of the PC on the FV in the Egyptian environment. The results are consistent with much previous research like Supatmi et al. [61] who investigated the moderating role of PC on the relation between RPTs and FV on 450 Indonesian firms, where the results showed that RPTs has a negative impact on the FV and that PC is negatively affecting the FV. Furthermore, according to Rahman and Nugrahanti [57], the RPTs disclosure has a significant impact on the FV and PC. That study also examined the moderating role of the CG on the relation between the PC and the RPTs. In this paper, we use the CG as a control variable to examine its ability in mitigating the unfavorable effect of the PC on the FV. The results of the current study reveal that there is a positive relationship between the PC and the FV. In addition, it shows that the RPTs moderating role is significant. Meanwhile, it shows that the board expertise and gender diversity have a significant impact on the FV, while the board size has an insignificant impact on the FV and that is consistent with the results of [5, 30].

On the other hand, Hendratama and Barokah [31] investigate the relationship between the RPTs and FV using the corporate social responsibility as a moderating variable. The results showed that there is a negative relationship between the RPTs and the FV which is consistent with the results of our paper. This suggests that the Egyptian market may view RPTs as opportunistic and less trustworthy than other transactions because of the unfairness of the RPTs. The connection between related parties and FV grows more favorable, nevertheless, in the presence of good CG. This study suggests that CG may reduce opportunism for companies and that good implementation of CG reflects the incentives for companies to be trusted and ethical.


The PC and its impact on the FV have been extensively studied, but the mechanism by which it presents itself remains unknown. To overcome this gap in the literature, this paper proposes the RPTs as a moderating variable for politically connected companies to tunnel the FV. Due to the fact that the PC and the RPTs are so prevalent everywhere, they are predicted to play a substantial influence in determining the management incentives and the business performance. We find that RPTs are utilized by the politically connected firm primarily to tunnel resources out of the firms.

Based on the findings of our analysis of the causal relationship between the PC, the RPTs and the firm performance, we conclude that, in general, the RPTs of the firms explain the inconsistent effects of the PC on the firm performance. Politically connected firms have a higher value until the related party has moderated the relation with negative impact on the FV. The findings support the conflict-of-interest hypothesis by indicating that these RPTs were more of a tunneling mechanism. Firms with stronger political ties have a higher value. Furthermore, the PC in these firms may have resulted in conflicts of interest (agency theory) and was not part of the firms’ political strategy to mitigate external risks (resource dependence theory). In terms of practical implications, investors should consider the significance of the PC and RPTs, particularly those that are not clearly disclosed in the financial statements when making investment decisions.

This study demonstrates that the RPTs and the PC tend to cause conflict of interest and, as a result, reduce the FV. Furthermore, the PC has the potential to strengthen the causal relationship between the RPTs and the firm value. Furthermore, the findings suggest that firms should consider the PC in the composition of the board members, as well as the types and amount of the RPTs, to prevent their value from declining. The PC levels are determined and measured subjectively. We only managed to generate less detailed information on the profile of the board members, such as CEO gender, board size, CEO duality and board experience as control variables for this relation as a way of mitigating the conflict of interest. As a result, we must assume that these board members have the lowest PC scores, which may or may not correspond to their true positions. In determining and measuring the level of the PC, this study also did not account for the period or terms served by the politically connected personnel. As a result, future research should be carried out to discover better methods of tracing the true position of each board member of a politically connected firm and accommodating the position’s terms. Furthermore, it should be noted that many of the explanatory variables PC, RPT and CG variables are endogenously determined, which in turn needs further investigation about the causality relationship. However, investment and the policy makers in countries where the RPTs are commonplace will benefit from our findings. Research on RPTs and related relationships is critical for investors to make informed judgments when investing in companies with political links.

The findings of this paper would benefit the policymakers and the Egyptian Stock Exchange Authority as it draws the attention on the role played by the PC across the firms and its impact on the firms’ value, and how this role is enhanced when controlling for the CG and the RPTs; where it highlights the need for further regulations to protect the interests of the minority stockholders, as well as stakeholders and to provide better financial reporting quality. In this regard, the Egyptian Institute of Directors should release a more CG regulations that help in ensuring the interests of minatory of stockholders in an attempt to control the adverse actions of political connections to maximize their benefits. It is believed that gender diversity is one of the pillars that could help in this direction. Additionally, the Egyptian Accounting Standards setters might release a standard that provides guidelines on the realization and the disclosure of the RPTs, which in turn would lead to improvements in the firms’ performance and value. The Egyptian Stock Exchange Authority would impose penalties on listed companies who do not comply with the regulations; especially, the disclosure requirements as well as the CG mechanisms.

Availability of data and materials

We have used secondary sources to complete our study. No new data are used or produced in this study.



Political connections


The firm value


Related party transactions


Corporate governance mechanisms


Egyptian stock exchange


Chief executive officer


Resource dependence theory


International accounting standards


Tax avoidance


The International Finance Corporation


Women on board


Structure equation modeling


  1. Abdel-Fattah HA-N, El-Shayeb NA, America HESA (2020) Examining the relationship between political connections, related party transactions, and firm value in Egyptian listed companies: empirical study. Int J Acad Res Bus Soc Sci 10(9):393–413

    Google Scholar 

  2. Albu OB, Flyverbom M (2019) Organizational transparency: conceptualizations, conditions, and consequences. Bus Soc 58(2):268–297

    Article  Google Scholar 

  3. Aldhamari R, Nor MNM, Boudiab M, Mas’ud A (2020) The impact of political connection and risk committee on corporate financial performance: evidence from financial firms in Malaysia. Corp Gov Int J Bus Soc 20(7):1281–1305

    Google Scholar 

  4. Artunç C, Salah M (2021) Political connections and corporate performance in Egypt, 1890–1952. Working paper, Association for analytic learning about Islam and Muslim societies, USA

  5. Assidi S (2020) The effect of voluntary disclosures and corporate governance on firm value: a study of listed firms in France. Int J Discl Gov 17(2):168–179

    Article  Google Scholar 

  6. Azim F, Mustapha MZ, Zainir F (2018) Impact of corporate governance on related party transactions in family-owned firms in Pakistan. Inst Econ 10(2):22–61

    Google Scholar 

  7. Bandiyono A (2019) The effect of good corporate governance and political connection on value firm. J Akunt 23(3):333–348

    Google Scholar 

  8. Ben Cheikh SB, Loukil N (2022) Political connections, related party transactions and firm performance: evidence from Tunisian context. J Account Emerg Econ Forthcom, 1–21

  9. Bona-Sánchez C, Fernández-Senra CL, Pérez-Alemán J (2017) Related-party transactions, dominant owners and firm value. BRQ Bus Res Q 20(1):4–17

    Article  Google Scholar 

  10. Chancharat S, Detthamrong U, Chancharat N (2019) Board structure, political connection and firm performance: evidence from Thailand. Int J Bus Soc 20(3):1096–1111

    Google Scholar 

  11. Chekir H, Diwan I (2014) Crony capitalism in Egypt. J Glob Dev 5(2):177–211

    Google Scholar 

  12. Chen CR, Li Y, Luo D, Zhang T (2017) Helping hands or grabbing hands? An analysis of political connections and firm value. J Bank Finance 80:71–89

    Article  Google Scholar 

  13. Cheung YL, Jing L, Lu T, Rau PR, Stouraitis A (2009) Tunneling and propping up: An analysis of related party transactions by Chinese listed companies. Pac Basin Finance J 17(3):372–393

    Article  Google Scholar 

  14. Diab AA, Aboud A, Hamdy A (2019) The impact of related party transactions on firm value. J Financ Rep Account 17(3):571–588

    Article  Google Scholar 

  15. Ding S, Knight J, Zhang X (2019) Does China overinvest? Evidence from a panel of Chinese firms. Eur J Finance 25(6):489–507

    Article  Google Scholar 

  16. Downs DH, Ooi JT, Wong WC, Ong SE (2016) Related party transactions and firm value: evidence from property markets in Hong Kong, Malaysia and Singapore. J Real Estate Finance Econ 52(4):408–427

    Article  Google Scholar 

  17. Du X, Luo JH (2016) Political connections, home formal institutions, and internationalization: evidence from China. Manag Organ Rev 12(1):103–133

    Article  Google Scholar 

  18. El-Deeb MS (2015) Disclosure attributes impact of corporate governance auditing quality and voluntary disclosures on the financial performance of banks listed in the Egyptian stock exchange market. Alex Univ J 19(5):41–77

    Google Scholar 

  19. El-Deeb M, Elsharkawy L (2019) The impact of board characteristics on the disclosure of the forward-looking information: evidence from the Egyptian stock market. Alex J Account Res 3(3):1–38.

    Article  Google Scholar 

  20. Eldomiaty TI, Anwar M, Magdy N, Hakam MN (2020) Robust examination of political structural breaks and abnormal stock returns in Egypt. Future Bus J 6(1):1–9

    Article  Google Scholar 

  21. El-Helaly M, Georgiou I, Lowe AD (2018) The interplay between related party transactions and earnings management: the role of audit quality. J Int Account Audit Tax 32:47–60

    Article  Google Scholar 

  22. Faccio M (2006) Politically connected firms. Am Econ Rev 96(1):369–386

    Article  Google Scholar 

  23. Fiaz S, Qureshi MA (2021) How perceived organizational politics cause work-to-family conflict? Scoping and systematic review of literature. Future Bus J 7(1):1–18

    Article  Google Scholar 

  24. Fisman R (2001) Estimating the value of political connections. Am Econ Rev 91(4):1095–1102

    Article  Google Scholar 

  25. Ghonji Feshki A, Khanmohammadi MH, Yazdani S (2020) Political connection and earnings management methods: evidence from Tehran stock exchange. Int J Finance Manag Account 5(17):1–17

    Google Scholar 

  26. D Golubkov (2016) Corporate political connections in Russia and their implications for firm-level operational, financial, and investment activities (Doctoral dissertation, ESSEC Business School, France

  27. Gordon EA, Henry E, Palia D (2004) Related party transactions and corporate governance. Adv Financ Econ 9:1–28

    Article  Google Scholar 

  28. Guluma TF (2021) The impact of corporate governance measures on firm performance: the influences of managerial overconfidence. Future Bus J 7(1):1–18

    Article  Google Scholar 

  29. Habib A, Muhammadi AH, Jiang H (2017) Political connections and related party transactions: evidence from Indonesia. Int J Account 52(1):45–63

    Article  Google Scholar 

  30. Haj-Salem I, Ayadi SD, Hussainey K (2020) The joint effect of corporate risk disclosure and corporate governance on firm value. Int J Discl Gov 17(2):123–140

    Article  Google Scholar 

  31. Hendratama TD, Barokah Z (2020) Related party transactions and firm value: the moderating role of corporate social responsibility reporting. China J Account Res 13(2):223–236

    Article  Google Scholar 

  32. Huang DT, Liu ZC (2010) A study of the relationship between related party transactions and firm value in high technology firms in Taiwan and China. Afr J Bus Manag 4(9):1924–1931

    Google Scholar 

  33. Huang H, Zhao Z (2016) The influence of political connection on corporate social responsibility—evidence from listed private companies in China. Int J Corp Soc Responsib 1(1):1–19

    Google Scholar 

  34. Hultman J, Axelsson B (2007) Towards a typology of transparency for marketing management research. Ind Mark Manag 36(5):627–635

    Article  Google Scholar 

  35. SR Ika, Z Rachmanti, JP Nugroho, WH Putri (2021) Political connection, corporate governance, and firm value: Indonesian evidence. In 7th regional accounting conference (KRA 2020), pp 37–45. Atlantis Press

  36. Infante L, Piazza M (2014) Political connections and preferential lending at local level: some evidence from the Italian credit market. J Corp Finance 29:246–262

    Article  Google Scholar 

  37. International Accounting Standards, IAS 24 (2009) Related party disclosures, the International Accounting Standards Board (IASB), USA

  38. Kassem R (2019) Understanding financial reporting fraud in Egypt: evidence from the audit field. Third World Q 40(11):1996–2015

    Article  Google Scholar 

  39. Kohlbeck M, Mayhew BW (2010) Valuation of firms that disclose related party transactions. J Account Public Policy 29(2):115–137

    Article  Google Scholar 

  40. Krueger AO (1974) The political economy of the rent-seeking society. Am Econ Rev 64(3):291–303

    Google Scholar 

  41. Li C, Wang Y, Wu L, Xiao JZ (2016) Political connections and tax-induced earnings management: evidence from China. Eur J Finance 22(4–6):413–431

    Article  Google Scholar 

  42. Li H, Meng L, Wang Q, Zhou LA (2008) Political connections, financing and firm performance: evidence from Chinese private firms. J Dev Econ 87(2):283–299

    Article  Google Scholar 

  43. CY Liew, SS Devi (2020) Independent directors’ tenure, expropriation, related party transactions, and firm value: the role of ownership concentration in Malaysian publicly listed corporations. In: Handbook of research on accounting and financial studies (pp 182–207). IGI Global

  44. Liu F, Lin H, Wu H (2018) Political connections and firm value in China: an event study. J Bus Ethics 152(2):551–571

    Article  Google Scholar 

  45. Maaloul A, Chakroun R, Yahyaoui S (2018) The effect of political connections on companies’ performance and value: evidence from Tunisian companies after the revolution. J Account Emerg Econ 8(2):185–204.

    Article  Google Scholar 

  46. Miettinen T, Poutvaara P (2014) A market for connections. Eur J Polit Econ 33:37–52

    Article  Google Scholar 

  47. Miglani S, Ahmed K, Henry D (2020) Corporate governance and turnaround: evidence from Australia. Aust J Manag 45(4):549–578

    Article  Google Scholar 

  48. Mulchandani K, Mulchandani K, Jasrotia SS (2021) Does gender diversity on firm’s board affect dividend payouts? Evidence from India. Future Bus J 7(1):1–11

    Article  Google Scholar 

  49. Nekhili M, Cherif M (2011) Related parties transactions and firm’s market value: the French case. Rev Account Finance 10(3):291–315

    Article  Google Scholar 

  50. Nesterchuk O, Trifonov N, Grishin O (2020) Religious organizations as a political actor in Bulgarian civil society. Rev Incl 7:357–367

    Google Scholar 

  51. Ojra J, Opute AP, Alsolmi MM (2021) Strategic management accounting and performance implications: a literature review and research agenda. Future Bus J 7(1):1–17

    Article  Google Scholar 

  52. Pang C, Wang Y (2021) Political connections, legal environments and firm performance around the world. Int J Finance Econ 26(3):4393–4409

    Article  Google Scholar 

  53. Peng WQ, Wei KJ, Yang Z (2011) Tunneling or propping: Evidence from connected transactions in China. J Corp Finance 17(2):306–325

    Article  Google Scholar 

  54. Pizzo M (2013) Related party transactions under a contingency perspective. J Manag Gov 17(2):309–330

    Article  Google Scholar 

  55. Pratama A (2018) Does corporate governance affect related-party transactions? A study on Indonesian companies listed on the Indonesian Stock Exchange in 2011–2015. Int J Econ Policy Emerg Econ 11(5):470–478

    Google Scholar 

  56. Rafay A, Sadiq R, Ajmal M (2016) The Effect of IAS-24 disclosures on governance mechanisms and ownership structures in Pakistan. Lahore J Bus 5(1):15–36

    Article  Google Scholar 

  57. Rahman AF, Nugrahanti YW (2021) The influence of related party transaction and corporate governance on firm value: an empirical study in Indonesia. J Asian Finance Econ Bus 8(6):223–233

    Google Scholar 

  58. Schnackenberg AK, Tomlinson EC (2016) Organizational transparency: a new perspective on managing trust in organization-stakeholder relationships. J Manag 42(7):1784–1810

    Google Scholar 

  59. Sniderman PM, Theriault SM (2018) The structure of political argument and the logic of issue framing. In: Saris WE, Sniderman PM (eds) Studies in public opinion. Princeton University Press, pp 133–165

    Chapter  Google Scholar 

  60. Su ZQ, Fung HG (2013) Political connections and firm performance in Chinese companies. Pac Econ Rev 18(3):283–317

    Article  Google Scholar 

  61. Supatmi S, Sutrisno S, Saraswati E, Purnomosidhi B (2021) Abnormal related party transactions, political connection, and firm value: evidence from Indonesian firms. Int J Bus Soc 22(1):461–478

    Article  Google Scholar 

  62. Tambunan ME, Siregar H, Manurung AH, Priyarsono DS (2017) Related party transactions and firm value in the business groups in the Indonesia stock exchange. J Appl Finance Bank 7(3):1

    Google Scholar 

  63. Tsai PH, Liu Y, Liu X (2021) Collusion, political connection, and tax avoidance in China. Kyklos 74:417–441

    Article  Google Scholar 

  64. Ullah H, Shah A (2015) Related party transactions and corporate governance mechanisms: evidence from firms listed on the Karachi stock exchange. Pakistan Bus Rev 17(3):663–680

    Google Scholar 

  65. Utama CA, Utama S (2014) Corporate governance, size and disclosure of related party transactions, and firm value: Indonesia evidence. Int J Discl Gov 11(4):341–365

    Article  Google Scholar 

  66. Wang J, Yuan H (2012) The impact of related party sales by listed Chinese firms on earnings informativeness and analysts’ forecasts. Int J Bus 17(3):258–275

    Google Scholar 

  67. Wang Y, Yao C, Kang D (2019) Political connections and firm performance: evidence from government officials’ site visits. Pac Basin Finance J 57:101021

    Article  Google Scholar 

  68. Wei C, Hu S, Chen F (2020) Do political connection disruptions increase labor costs in a government-dominated market? Evidence from publicly listed companies in China. J Corp Finance 62:101554

    Article  Google Scholar 

  69. Wong WY, Hooy CW (2018) Do types of political connection affect firm performance differently? Pac Basin Finance J 51:297–317

    Article  Google Scholar 

  70. Yang R, Wang Y, Nie H (2012) The political promotion for quasi-government officers: evidence from central state-owned enterprises in China. Manag World 3:23–33

    Google Scholar 

  71. Zhang H, Li L, Zhou D, Zhou P (2014) Political connections, government subsidies and firm financial performance: evidence from renewable energy manufacturing in China. Renew Energy 63:330–336

    Article  Google Scholar 

Download references


We thank the editor and the anonymous reviewers for their constructive comments.


The authors received no specific funding.

Author information

Authors and Affiliations



TI developing the original draft, helped in methodology and edited and reviewed the draft and made constructive changes to the draft. ME prepared the original draft as well as reviewing the literature. YH collected the data, analyzed the results, and concludes the draft. All authors have read and approved the manuscript.

Authors information

Tariq H. Ismail is Professor of accounting at the Faculty of Commerce, Cairo University, Egypt as well as the Business School Dean at International Academy for Engineering and Media Science, Egypt. He is currently on the Board of General Promotion Committee of Accounting and Auditing, Supreme Council of Universities, Egypt. He has published numerous articles in top and highly ranked journals and has many books which had worldwide audience. He had many research grants and excellence awards for the contributions he made in his field. He is the associate editor of Journal of Humanities and Applied Social Sciences. He is on the editorial board of several reputable journals. His current research focuses on disclosure quality and financial reporting, accounting in emerging economies, and corporate governance.

Mohamed El-Deeb is Professor of accounting and the head of the Accounting Department at Modern Sciences and Arts University (MSA). He received his Bachelor, MSc, and PhD of Accounting from Cairo University. Dr. Mohamed El-Deeb is a fellow of the higher education academy-UK. He has a post graduate certificate in education from Greenwich university-UK. Dr. Mohamed El-Deeb is a Chartered Accountant (CA) and is certified by the Egyptian Accounting Syndicate. He is a member of many professional associations like the Egyptian Society of Accountants and Auditors (ESAA), and Egyptian tax society.

Yasser Tawfik Halim got his Ph.D. with specialization in marketing. He is currently working at MSA University as the Head of Marketing and International Business Department. Besides, he is currently the manager for the quality assurance unit at the Faculty of Management Sciences, MSA University. Prof. Yasser’s work has enabled him to gain experiences in many fields such as research, education, management, HR, business, organization behavior, organizational change, marketing, sales, service marketing, social marketing, consumer behavior and other areas. During his work at several universities, research centers and other organizations, he has enriched his capabilities at consultancy and training in different management and marketing specialties. Prof. Yasser has published several books and researches in different areas of marketing and management. In addition, he is a certified trainer from the Higher Education Academy from UK. He has also conducted several trainings for universities and several organizations in the fields of business, marketing and managerial skills.

Corresponding author

Correspondence to Tariq H. Ismail.

Ethics declarations

Ethics approval and consent to participate

Not applicable.

Consent for publication

Not applicable.

Competing interests

The authors declare that they have no conflict of interest.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Ismail, T.H., El-Deeb, M. & Halim, Y.T. Do related party transactions affect the relationship between political connections and firm value? Evidence from Egypt. Futur Bus J 8, 10 (2022).

Download citation

  • Received:

  • Accepted:

  • Published:

  • DOI:


  • Related party transactions
  • Political connections
  • Corporate governance
  • Firm value
  • EGX
  • Egypt