Examining the Impact of Related Party Transactions on Firm’s Financial Health: Evidence from Egypt

The primary objective of this study is to investigate the influence of engagement in Related Party Transactions (RPTs) on firm’s Financial Health (FH). For further analysis, this study aims to determine the influence of both normal and abnormal RPTs on firm’s FH measured by Modified Altman Z-score (Z′′- score) and Refined Economic Value Added (REVA). In this study, a sample of 40 Egyptian listed firms is used during the period from 2018 to 2022. The findings of the study revealed that RPTs have a significant adverse influence on firm’s FH measured by both Z′′- score and REVA. These findings can be justified by the agency theory which supports the abusive behavior of RPTs. Moreover, further analysis indicated that abnormal RPTs have a significant influence on firm’s FH, thus abnormal RPTs is considered the main driver of the adverse influence of RPTs on Firm’s FH.