The effects of audit quality on the costs of capital of firms in Ghana

Purpose This paper aims to investigate the effects of audit quality on the cost of capital in Ghana. Design/methodology/approach Non-financial firms listed on the Ghana Stock Exchange (GSE) as well as non-listed firms from the database of Ghana Club 100 were included in the sample. Series are yearly, covering a sample of 40 firms during the six-year period, 2008-2013. The study employed the positivist research paradigm to establish the relationship between audit quality and the cost of capital. Findings There is evidence to suggest that the cost of debt and the overall cost of capital of firms in Ghana can be explained by the quality of the external auditors. The results also show that the large size of the board is associated with low cost of debt. Research limitations/implications The fact that the choice of quality measure is based on firm size only and other measurements of audit quality could not be measured. Future research may examine how other approaches to measuring audit quality affect cost of capital. Practical implications The results significant for those charged with assurance and regulation, as well as lenders and managers of companies. Originality/value The authors investigate how external auditing quality affects the cost of capital of firms operating in Ghana.