Audit Quality Attributes, Client Size and Cost of Equity Capital

This study the Examines the relationship between audit quality, client size and cost of equity of listed companies in Tehran Stock Exchange. Gordon model is selected to calculate the cost of equity. Also, the size of the audit firm, auditor industry specialization and auditor tenure is used as the criteria’s for the audit quality. The statistics population of this study is all of the listed companies in Tehran Stock Exchange during 2000 till 2010 and the research sample is included 105 companies which are examined in 5 years.
The results show that there is a negative significant relationship between the size of the auditor firm and auditor tenure with cost of equity, also this relationship is much stronger in small-scale companies.
This study emphasizes on the importance of audit quality in determining company s cost of capital and indicates that company’s special small companies decline the cost of equity by the means of improvement of information-environment through proper selection of the auditor.