Auditor’s Attributes and Cost of Capital in Iran Capital Market

Mohammad Hamed KhanMohammadi, Ali Akbar Arbabian, Tooran ShiriDoyj


This research aims to examine the impact of audit quality (auditor’s quality evaluation, auditor size, auditor industry specialization, and auditor tenure) on Iran capital market.  The result of the analysis of 1140 years of the company during 2006-2015 has shown that there is a significant negative relationship between the auditor expertise and auditor tenure. Although the negative relationship between all of the criteria of audit quality and cost of capital is not confirmed, it cannot be claimed that high audit quality does not cause reduction in cost of capital in Iran capital market.

Full Text:

PDF 109-118


Ahmed, A. S., Rasmussen, S. J., & Tse, S. Y. (2008). Audit quality, alternative monitoring mechanisms, and cost of capital: An empirical analysis.

Albeksh, H. M. (2016). Compliance of Auditors to Ethics and Rules of Professional Conduct and Its Impact on Audit Quality. Imperial Journal of Interdisciplinary Research, 2(12), 610-621.

Altig, D., Christiano, L. J., Eichenbaum, M., & Linde, J. (2011). Firm-specific capital, nominal rigidities and the business cycle. Review of Economic dynamics, 14(2), 225-247.

Andon, P., Free, C., & O'Dwyer, B. (2015). Annexing new audit spaces: challenges and adaptations. Accounting, Auditing & Accountability Journal, 28(8), 1400-1430.

Arner, D. W. (2007). Financial stability, economic growth, and the role of law: Cambridge University Press.

Baah, G. K., & Fogarty, T. J. (2016). What auditors think about audit quality-a new perspective on an old issue. Available at SSRN: or

Behn, B. K., Choi, J.-H., & Kang, T. (2008). Audit quality and properties of analyst earnings forecasts. The Accounting Review, 83(2), 327-349.

Bierman Jr, H., & Smidt, S. (2012). The capital budgeting decision: economic analysis of investment projects: Routledge.

Blaikie, P. (2016). The political economy of soil erosion in developing countries: Routledge.

Cameran, M., Prencipe, A., & Trombetta, M. (2016). Mandatory audit firm rotation and audit quality. European accounting review, 25(1), 35-58.

Chen, F., Hope, O.-K., Li, Q., & Wang, X. (2011). Financial reporting quality and investment efficiency of private firms in emerging markets. The Accounting Review, 86(4), 1255-1288.

Choi, J.-H., Kim, C., Kim, J.-B., & Zang, Y. (2010). Audit office size, audit quality, and audit pricing. Auditing: A Journal of practice & theory, 29(1), 73-97.

Davidson, R. A., & Neu, D. (1993). A note on the association between audit firm size and audit quality. Contemporary Accounting Research, 9(2), 479-488.

DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of accounting and economics, 3(3), 183-199.

Drover, W., Busenitz, L., Matusik, S., Townsend, D., Anglin, A., & Dushnitsky, G. (2017). A review and road map of entrepreneurial equity financing research: venture capital, corporate venture capital, angel investment, crowdfunding, and accelerators. Journal of Management, 43(6), 1820-1853.

Dye, R. A. (1993). Auditing standards, legal liability, and auditor wealth. Journal of political economy, 101(5), 887-914.

Easley, D., & O'hara, M. (2004). Information and the cost of capital. The journal of finance, 59(4), 1553-1583.

El Ghoul, S., Guedhami, O., & Pittman, J. (2016). Cross-country evidence on the importance of Big Four auditors to equity pricing: The mediating role of legal institutions. Accounting, Organizations and Society, 54, 60-81.

Fernando, G. D., Abdel-Meguid, A. M., & Elder, R. J. (2010). Audit quality attributes, client size and cost of equity capital. Review of Accounting and Finance, 9(4), 363-381.

Fortin, S., & Pittman, J. A. (2007). The role of auditor choice in debt pricing in private firms. Contemporary Accounting Research, 24(3), 859-896.

Francis, J. R. (2004). What do we know about audit quality? The British Accounting Review, 36(4), 345-368.

Freeman, R. E. (2010). Strategic management: A stakeholder approach: Cambridge university press.

Fung, S. (2014). Hong Kong Auditing: Economic Theory & Practice: City University of HK Press.

Gimbar, C., Hansen, B., & Ozlanski, M. E. (2016). The effects of critical audit matter paragraphs and accounting standard precision on auditor liability. The Accounting Review, 91(6), 1629-1646.

Gunny, K., Krishnan, G., & Zhang, T. C. (2007). Is audit quality associated with auditor tenure, industry expertise, and fees? Evidence from PCAOB opinions.

Hanwen, C., Chen, J., Lobo, G., & Wang, Y. (2008). Effects of Audit Quality on Cost of Equity Capital and Earnings Management: Evidence from China. Available in http://www. SSRN. com, 12, 17-32.

Hogan, C. E., & Jeter, D. C. (1999). Industry specialization by auditors. Auditing: A Journal of practice & theory, 18(1), 1-17.

Houqe, M. N., Ahmed, K., & Zijl, T. (2017). Audit Quality, Earnings Management, and Cost of Equity Capital: Evidence from India. International Journal of Auditing, 21(2), 177-189.

Jacobides, M. G., & Croson, D. C. (2001). Information policy: Shaping the value of agency relationships. Academy of management review, 26(2), 202-223.

Kend, M. (2008). Client industry audit expertise: towards a better understanding. Pacific Accounting Review, 20(1), 49-62.

Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk: Taylor & Francis.

Lambert, R., Leuz, C., & Verrecchia, R. E. (2007). Accounting information, disclosure, and the cost of capital. Journal of accounting research, 45(2), 385-420.

Lee, S.-C., Su, J.-M., Tsai, S.-B., Lu, T.-L., & Dong, W. (2016). A comprehensive survey of government auditors’ self-efficacy and professional Development for improving audit quality. SpringerPlus, 5(1), 1263.

Lennox, C., Wu, X., & Zhang, T. (2016). The effect of audit adjustments on earnings quality: Evidence from China. Journal of accounting and economics, 61(2-3), 545-562.

Li, Y., Stokes, D. J., Taylor, S. L., & Wong, L. (2009). Audit quality, accounting attributes and the cost of equity capital. Available at SSRN: or

Louis, H., Robinson, D., Robinson, M., & Sun, A. (2015). The effects of the extant clauses limiting auditor liability on audit fees, auditor conservatism, and overall reporting quality. Available at SSRN: or

MINUTTIâ€MEZA, M. (2013). Does auditor industry specialization improve audit quality? Journal of accounting research, 51(4), 779-817.

Myers, J. N., Myers, L. A., & Omer, T. C. (2003). Exploring the term of the auditor-client relationship and the quality of earnings: A case for mandatory auditor rotation? The Accounting Review, 78(3), 779-799.

Palmrose, Z.-V. (1986). Audit fees and auditor size: Further evidence. Journal of accounting research, 97-110.

Pike, R., & Neale, B. (2006). Corporate finance and investment: decisions & strategies: Pearson Education.

Piot, C., & Janin, R. (2005). Audit quality and earnings management in France.

Piot, C., & Missonier-Piera, F. (2007). Corporate governance, audit quality and the cost of debt financing of French listed companies. Communication présentée au 28ème Congrès de l’Association Francophone de Comptabilité, Poitiers.

Pratt, S. P., & Grabowski, R. J. (2008). Cost of capital: John Wiley & Sons.

Salifu, I., & Mahama, M. (2015). The Evaluation of Evidence of the Audit Expectation Gap in Ghana. Evaluation, 6(24).

Titman, S., & Trueman, B. (1986). Information quality and the valuation of new issues. Journal of accounting and economics, 8(2), 159-172.

Vătavu, S. (2015). The impact of capital structure on financial performance in Romanian listed companies. Procedia Economics and Finance, 32, 1314-1322.

Wallace, W. (1980). The economic role of the audit in free and regulated markets: Open Educational Resources.

Zikmund, W. G., Babin, B. J., Carr, J. C., & Griffin, M. (2013). Business research methods: Cengage Learning.


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

World of Researches Publication