Investigating Moderating Effect of Audit Firm Size on the Relationship between Agency Costs and Political Connections

The importance of understanding the role of firms with political ties in the economies of developing countries results from their growth and subsequent importance in recent decades. Despite the multiple benefits that were introduced for political ties, agency and governance problems are likely to cause problems for firms with political ties and lead to value destroying and rent-seeking activities and subsequently lead to agency costs. Firms with political ties have higher demands for industry specialist auditors in order to minimize agency costs related to political ties. Using the data from 111 listed firms in Tehran Stock Exchange over the years 2011 to 2015 and multivariate regression, this study attempted to examine the moderating effect of audit firm size on agency costs and political ties. The results showed that political ties increase agency costs and audit firm size reduces the increasing effect of political ties on agency costs.