Audit quality and cost of equity capital Online publication date: Thu, 31-Jul-2014
by Rohaida Basiruddin; Prawat Benyasrisawat; Siti Zaleha Abdul Rasid
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 4, No. 2, 2014
Abstract: The purpose of this research is to examine the relationship between audit quality and cost of equity capital. This research argues that the higher the levels of audit quality, the lower the rate of return required by the investor. The cost of equity capital is measured by the price-earnings growth (PEG) model. Audit quality is measured by proxies, including audit fees, non-audit fees, industry specialist auditors and earnings management. Based on 226 largest companies listed on the London Stock Exchange (FTSE 350) during 2005-2008, findings report a significant relationship between earnings management and the cost of equity capital. The research does not find a relationship between the other three audit quality proxies. The results suggest that among larger firms, earnings management is a major issue. Auditors are mainly expected to deal with earnings management. It is more likely that investors perceive auditing as an important mechanism to detect earnings management in large firms, enhancing the value of financial information.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the Afro-Asian J. of Finance and Accounting (AAJFA):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com
Our Blog 
Follow us on Twitter 
Visit us on Facebook