Impact of Audit Quality on the Cost of Equity Capital: An Empirical Study on Industrial and Service Companies Listed in Amman Stock Exchange

Abstract

This study aims at examining the impact of audit quality on the cost of equity capital of shareholding industrial and service companies listed in Amman Stock Exchange. This study hypothesizes that audit quality leads to economic benefits in the form of reduced cost of equity by the auditor’s offering of high-quality services. To achieve its objectives, the study used the panel data approach to analyze cross - sectional data for 81 companies, consisting of 48 industrial companies and 33 service companies that included time series data for the period (2010-2015). In order to test its hypotheses, the study used the fixed effect model. The results of the study showed that quality has an impact on the cost of equity capital of shareholding industrial and service companies. There is an impact of audit quality, despite the size and profitability of the company, on reducing equity capital cost of shareholding industrial and service companies.