The Empirical Research Of The Relationship Between Audit Quality And The Cost Of Capital Of Listed Firms

The value-added function of audit as an independent third party is the theoretical basisof the development of audit theory and audit work, with the premise of insurance of auditquality. The investment decisions of investors are made based on the disclosureinformation, market status and the expected-return of the investment. The correspondingrate of return is the cost of capital, reflected the anticipation of the investors on theinvestment risk. On the one hand, high quality of audit work can enhance the quality ofdisclosure information, reduce the investor’s risk of making decisions on the information,and thus indirectly reduce the cost of capital. On the other hand, hiring the accounting firmwith high-quality also reflects that these enterprises have the confidence of the disclosureinformation they releasedIn recent years, the financing of SMEs has attracted more and more attention; theestablishment of the Shenzhen SME board in2004advanced makes the equity financingpossible for the small and medium enterprises. Compared to the motherboard, thefinancing of Small and medium-sized listing Corporation do has some particularities,researching on the role of reducing the cost of capital of these enterprises played byhigh-quality auditing not only is meaningful in the field of small and medium-sized listingCorporation financing, but can also called the attention of the society to the audit quality.This paper selects listing Corporations of SMEs listed between2010and2011asresearch board object, with the normative and empirical analysis methods, researches theeffects of audit quality on the cost of equity capital, the cost of debt capital, the overallcost of capital, and try to make an analysis of the difference between the three.This paper draws the following three conclusions:(1) High-quality auditing canreduce the cost of equity capital of enterprises, investors are willing to give enterprisescertain preferential financing terms owing to the high level of audit quality.(2) Thehigh-quality auditing can also reduce the enterprise’s cost of debt capital, but theenterprises issued with non-standard audit opinions face higher cost of debt capital.(3) Theaudit quality and the weighted average cost of capital are negatively correlated, but notvery significant, which may indicates that there is a certain interaction between the cost ofdebt capital and the cost of equity capital. Based on the theoretical analysis and empiricalresults, this paper has affirmed the significance of audit quality on reducing the cost of the capital, tried to put forward some improvement measures and suggestions, and expoundsthe shortcomings and limitations in this study.