This study aims to examine the relationship between related party sales (RPS) and earnings management (EMN), as well as to investigate the moderating effects of institutional ownership (IO), single institutional ownership (SIO), and dispersed institutional ownership (DIO) on this relationship. This study examines non-service and non-financial firms listed on the Indonesia Stock Exchange during the 2016–2024 period. The sample selection included firms with IO and RPS. The final sample consisted of 68 firms (585 firm-year observations) out of a total of 601 firms and was analyzed using moderated regression with unbalanced panel data. The findings indicate that RPS has a positive effect on EMN. IO weakens the positive effect of RPS on EMN. However, in the group consisting only of SIO, the positive effect of RPS on EMN becomes stronger. In contrast, in the DIO group, DIO is unable to moderate the relationship. Furthermore, EMN in firms engaging in RPS with parent firms does not differ from EMN in firms engaging in RPS with non-parent related parties. Finally, we conclude that, in the Indonesian context, RPS provides opportunities for management to engage in opportunistic behavior. The presence of SIO may increase earnings management, whereas DIO is unable to mitigate earnings management.
Umar et al. (Fri,) studied this question.