Research On The Impacts Of Audit Quality Of Accounting Firms On The Cost Of Equity Capital For Chinese Listed Firms

Cost of equity capital is the cost paid by an firm to obtain equity from capital market,and it is also the required rate of return from investors.Therefore,the level of equity capital costs is important to both firms and investors.The equity financing has the advantages of large scale,small financing constraints,and small financial risk,which is favored by many firms in practice.In theoretical research,there are many factors that affect the cost of equity capital.Internal factors include the size of the company,the nature of property rights,business and financial risk,profitability and stock liquidity.External factors include system risk factors,industry factors and market supervision factors.The independent audit system of accounting firms is an important force in the supervision of capital market.Therefore,it is an important external factor influences the cost of equity capital.The research idea of this paper is high audit quality can improve accounting information quality of listed companies,which in turn,reduce the investment risk.Based on the information view,the investor’s cognitive theory as well as the information asymmetry theory,it is proposed that the audit quality of the accounting firm can reduce the cost of equity capital of the listed company.Further,from the differences such as corporate government and financing constraints,this paper compares the impact of audit quality on equity capital costs from the two dimension of property right and the size of company.Based on the theoretical analysis,this paper uses the empirical research method,taking 393 A-listed from 2012-2015 as research sample.The OJ model with less forecasting constraints is used to calculate the cost of equity capital,the Post-Audit Earnings quality and the size of the accounting firm to measure audit quality.Through the theoretical analysis and empirical test,the conclusion of this paper is as follows:First,the audit quality of accounting firms can reduce the cost of equity capital of listed companies,which imply that the independent audit system of accounting play an important role to improve the financial information quality.Second,compared with SOEs,the effect of audit quality on the cost of equity capital is more pronounced for NSOEs.Compared with large companies,the effect of audit quality on the cost of equity capital is more pronounced for small-scale companies.The results demonstrate that investors have higher information risks for NSOEs and small-scale listed companies,and thus have a higher degree of reliance on the audit quality of accounting firms.The research of this paper enriches the literature of cost of equity capital.By testing the relationship between the capital market and the audit market,it makes an effort to improve the status of accounting firms,as well we to improve the auditing quality,and the establishment of the audit quality standard.