Audit Quality Impact on Cost of Equity Capital in Companies Accepted in Tehran Stock Exchange

Abstract

The purpose of this study is to investigate audit quality impact on cost of equity capital. The data has been collected from financial statements of 91 firms accepted in Tehran Stock Exchange (TSE) in the years 2004 to 2010. In this study, the audit quality is measured by audit size and auditor tenure, and the cost of equity capital is measured by industry-adjusted earnings-price ratio. The hypotheses of the study were tested by polled regression model. The results indicate that audit firm size and auditor tenure have meaningful negative relationships with cost of equity capital. Hence, it could be concluded that audit quality reduces cost of equity capital of the manufacturing companies accepted in Tehran Stock Exchange.

Keywords

• keywords: cost of equity capital
• audit quality
• audit firm size
• auditor tenure