The investigation of effect of industry specialist auditor on cost of equity capital and interest rate on debt capital in firms listed in Tehran Stock Exchange

Document Type : Original Article

Authors
Zohreh Hajiha 1
Neda Sobhani 2
1 Assistant professor of Islamic Azad University, East Tehran Branch
2 Master of accounting, Islamic Azad University, Islamshahr Branch
Abstract
This study investigates the relationship between industry specialist auditor and interest rate on debt capital and also cost of equity capital for firms listed in Tehran Stock Exchange (TSE).Prior studies document that industry specialist auditor is one of the indicators of audit quality, so it due to lower cost of equity capital and whereas it decreases information risk therefore it also due to lower interest rate of financing by debt.
 In this line, for this research financial statements of 91 companies accepted by Tehran Stock Exchange for the period of 2004 to 2010 were analyzed. In this study, industry specialist is measured by using market share approach and for measuring the cost of equity capital; it has been utilized from an industry-adjusted earnings-price ratio.Also the interest rate is measured as financial expenses divided by the average of interest bearing debt at the beginning and end of year. The hypotheses of this paper were tested by using polled regression model. The results indicate that, firms with industry specialist auditor have lower cost of equity capital and interest rate than other firms.
Keywords
cost of equity capital
Interest rate
Audit quality
industry specialist auditor