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The Influence of Related Party Transaction and Corporate Governance on Firm Value: An Empirical Study in Indonesia*

This study aims to examine the effect of political connections on firm value through related party transaction (RPT) as a mediator in the context of emerging Indonesian economy. This study also aims to investigate the moderating role of corporate governance mechanism on the relationship between political connections and RPT. The theory used as the basis for this research is agency theory. The corporate governance mechanism tested in this study consists of independent board of commissioners, institutional ownership and board of commissioner size. Tobin’s Q is used to measure firm value. The population of this study is all companies listed on the Indonesia Stock Exchange in 2015–2018. Purposive sampling was conducted, and 271 non-financial companies (1,084 firm-years) were identified as the samples. For testing the hypotheses, panel generalized least square (GLS) using EViews 10 was used. The findings showed that political connection had a negative impact on firm value. The results also showed that RPT abnormal account receivables and RPT abnormal asset non-account receivable mediate the relationship between political connections and firm value. In addition, it is found that corporate governance mechanism, especially the proportion of independent board of commissioners and institutional ownerships, weakens the positive effect of political