Study of the relationship between audit quality and the cost of capital according to the corporate life cycle

Abstract

This research looks at how audit quality affects the cost of capital at many phases of the company life from 2012 to 2014. The independent variable is audit quality; the dependent variable is capital cost. The study investigates how audit quality affects the cost of capital throughout the stages of the company listed on the stock exchange, including growth, maturity, and decline. The results reveal a noteworthy link between capital cost and audit quality. High audit quality improves investor trust in the expansion phase, therefore lowering capital expenses. Financial stability and openness help companies in the mature stage, therefore enhancing the negative association between audit quality and capital expenditures. Financial difficulties, however, restrict the efficacy of audit quality in lowering capital expenses during the declining period. The research emphasizes the need of good auditing in reducing information asymmetry and thereby decreasing financing costs at many phases of business life. Investors, regulatory authorities, and financial managers trying to maximize capital structure choices depending on company lifecycle dynamics might find great value in these ideas.