The Effect of Corporate Governance and Audit Quality on the Weighted Average Cost of Capital: Comparative Analysis Based on Auditor Size, Firm Size and Income Smoother and non-Smoother Companies

Strong corporate governance system and high audit quality cause companies provide high quality and more transparent financial information through which information risk of creditors and investors reduces and thus may affect the company''s cost of capital. Therefore، the main objective of the present study is to investigate the effect of corporate governance and audit quality on the cost of capital of listed companies in Tehran Stock Exchange. For this purpose، a sample of 840 firm-years during the years 2006-2011 was chosen to test the research hypotheses. For a more detailed study of the research subject، the sample divided into the sub- samples of firms audited by auditing organization or by the other audit firms of certified public accountants member، and also by large and small companies and eventually by income smoother and non-smoother companies. The results from testing the research hypotheses on the total sample indicate that there is no significant relationship between the mechanisms of corporate governance and audit quality with the cost of capital. In addition، the results shown that the big size of board of director and existence of controlling shareholders in large companies can cause to reduce the cost of capital.