Research On The Influence Of Audit Quality On The Capital Allocation Efficiency

Capital allocation efficiency is one of the hot issues of the economics andfinancial management research. From the aspect of capital market operation, thecorporation should assess its investment efficiency as well as the financing cost;Perspective from a company’s financial activities, in the company economic activitycycle, financing activities and investment activities are very important to thecorporate operating conditions and future sustainable development. Therefore, it’snecessary to study the capital allocation efficiency from the aspects of financing costand investment efficiency.The functioning of capital market to a large extent depends on the quality ofaccounting information. The process of auditing work guarantees the accountinginformation’s reliability, reduces the company’s internal and external informationasymmetry. Learning the relationship between audit quality and the capital allocationefficiency has theoretical and practical significance.The combination of normative theory analysis and empirical research is used inthis paper. First of all, we define the concepts of the audit quality and capitalallocation efficiency, then summarize the existing literature and analyze the the effectof audit quality on the capital allocation efficiency with the related theory, in the endwe put forward the hypothesis; In addition, the paper carries on the empirical studyof financing cost and investment efficiency respectively, choosing PEG ratio methodto measure equity financing costs, and using Richardson model to calculate theefficiency of investment. Finally we select1427listed companies from2010to2013as sample, using descriptive statistics, correlation analysis and multivariate linearregression analysis methods to validate hypothesis.Through the analysis, there are some conclusions as following:(1) The equity financing cost is negatively related to the audit quality. Highquality audit can enhance the investor’s trust in the listed company’s information, reduce the expected return on investment and cut down the cost of financing.(2) The cost of debt financing is negatively related to the audit quality, but therelationship not statistically significant. The higher quality of audit the companyreceive, the lower debt financing cost is. However, the creditor focuses mostly on thecompany’s capital structure, solvency ability, they doesn’t pay much attention to theaudit quality, or audit quality does not significantly affect the bond investment riskestimates.(3) Efficiency of investment is negatively related to the audit quality. That is tosay, high audit quality helps to inhibit the insufficient and excessive investmentbehavior, which benefit to make effective investment decisions and optimize theallocation of social capital.