Investigating the Relationship between Audit Quality and Capital Structure

Due to the increasing public ownership of financial firms and based on the agency theory, which represents a conflict of interest between investors and corporate managers, increasing information asymmetry natural and seems this information asymmetry affects the capital structure of firms. Therefore, firms are trying to select audit firms with more quality work signaling to the market and reducing the information asymmetry, thereby reducing the cost of capital so that they can improve their capital structure. Thus, the purpose of this study is to investigate the relationship between audit quality and capital structure of firms listed in Tehran Stock Exchange. For this purpose, two hypotheses are developed and data from 81 companies in Tehran Stock Exchange for the period between 2005 and 2014 are analyzed. This regression model, using panel data with a fixed effects approach, was tested. The results showed that the audit firm size has a significant positive relation, and audit fees have a significant negative relation with capital structure.