The Relationship between Audit Quality and Investment Efficiency

Document Type : Research Paper

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Abstract

Following the separation of the firm management from their ownership and arising agency and also increase of the information asymmetry between managers and owners, the quality of audit services has found huge importance and it can serve as a tool to take care of the interests of groups concerned and provide proper use of resources by management for optimal investment and maximization of the owners. This research aims to study the economic concequences of audit services in Iran to investigate the relationship between audit quality and investment efficiency of listed companies in Tehran Stock Exchange. We use four proxies for determining quality audits which include auditor industry specialization, auditor reputation, auditor independence and auditor tenure, and we use Richardson (2006) model for measuring investment efficiency. This study is applied and iths research method is correlation and post facto. By deletion sampling method and considering criteria for samples, finally 100 firms were selected as samples of research for the period 2006-2011. To test the hypotheses panel data has been used. The results show that there is a significant positive relationship between audit quality and investment efficiency. Thus, improve of the audit causes to increase investment ffficiency by reducing information asymmetry between management and owners and mitigating the agency problems.
 

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References

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