Direct and Mediated Associations among Earnings Quality, Information Asymmetry and the Cost of Common Equity of companies in Tehran Stock Exchange

This article investigates whether earnings quality effect cost of common equity through information asymmetry. It is expected that information asymmetry mediates direct relation between earnings quality and cost of common equity listed companies in Tehran Stock Exchange. Using simple regression and path analysis techniques and a sample of 76 companies selected by using systematic elimination method of sample selection, for a period of 2007-2012, research hypotheses are tested. The results of the research indicate that there is direct significant relationship between earnings quality and cost of common equity. Also, there is indirect significant relation between earnings quality and cost of common equity that is mediated by information asymmetry.