Document Type : Original Research


Department of Accounting, University of Isfahan, Isfahan, Iran


In this study, the effect of audit quality on the market value of cash holdings was investigated. The company’s auditor expertise and tenure were considered as measures of audit quality. The regression model developed by Faulkender and Wang (2006) was applied to estimate the market value of cash holdings.Target sample includes 175 listed companies in the Tehran Stock Exchange during 2008-2014 (1387-1393Iranian calendars). In this study, it was supposed that audit quality affects the market value of cash holdings. The hypotheses were examined using panel data and a multivariate regression model of generalized least squares. The results indicated that the company’s auditor expertise affects the market value of cash holdings (the positive and significant relationship statistically). However, tenure does not affect the market value of cash holdings.


Alimov, A. (2014). Product Market Competition and the Value of Corporate Cash: Evidence from Trade Liberalization. Journal of Corporate Finance, 25: 122–139.
Ashbaugh-Skaife, H., D. Collins, & W. Kinney Jr. (2007). The Discovery and Reporting of Internal Control Deficiencies prior to SOX-Mandated Audits. Journal of Accounting and Economics, 44 (1-2): 166–192.
Ashbaugh-Skaife, H., D. Collins, W. Kinney Jr., & R. LaFond. (2008). The Effect of SOX Internal Control Deficiencies and their Remediation on Accrual Quality. The Accounting Review, 83 (1): 217-250.
Balsam, S., J. Krishnan, & J. Yang. (2003). Auditor Industry Specialization and Earnings Quality. Auditing: A Journal of Practice and Theory, 22 (2): 71–97.
Basu, S. (1997). The Conservatism Principle and the Asymmetric Timeliness of Earnings. Journal of Accounting and Economics, 24 (1): 3–37.
Bates, T., K. Kahle, & R. Stulz. (2009). Why do U.S. Firms Hold so much more Cash than they used to?. Journal of Finance, 64 (5): 1985–2021.
Bushman, R., and R. Indjejikian. (1993). Accounting Income, Stock Price, and Managerial Compensation. Journal of Accounting and Economics, 16 (1-3): 3–23.
Dittmar, A., and J. Mahrt-Smith. (2007). Corporate Governance and the Value of Cash Holdings. Journal of Financial Economics, 83 (3): 599–634.
Doyle, J., W. Ge, and S. McVay. (2007). Accruals Quality and Internal Control over Financial Reporting. The Accounting Review, 82 (5): 1141-1170.
Dunn, K., and B. Mayhew. (2004). Audit Firm Industry Specialization and Client Disclosure Quality. Review of Accounting Studies, 9 (1): 35–58.
Engel, E., E. Gordon, and R. Hayes. (2002). The Roles of Performance Measures and Monitoring in Annual Governance Decisions in Entrepreneurial Firms. Journal of Accounting Research, 40 (2): 485–518.
Faulkender, M., and R. Wang. (2006). Corporate Financial Policy and the Value of Cash. Journal of Finance, 61 (4): 1957–1990.
Feng, M., C. Li, and S. McVay. (2009). Internal Control and Management Guidance. Journal of Accounting and Economics, 48 (2-3): 190–209.
Francis, J. R., X. Martin. (2010). Acquisition Profitability and Timely Loss Recognition. Journal of Accounting and Economics, 49: 161–178.
Fresard, L., and C. Salva. (2010). The Value of Excess Cash and Corporate Governance: Evidence from US cross-listings. Journal of Financial Economics, 98 (2): 359–384.
Gompers, P., J. Ishii, and A. Metrick. (2003). Corporate Governance and Equity Prices. Quarterly Journal of Economics, 118(1): 107–155.
Harford, J. (1999). Corporate Cash Reserves and Acquisitions. Journal of Finance, 54 (6): 1969–1997.
Harford, J., S. A. Mansi, and W. F. Maxwell. (2008). Corporate Governance and Firm Cash Holdings in the US. Journal of Financial Economics, 87 (3): 535–555.
Huang, P., and Y. Zhang. (2012). Does Enhanced Disclosure really Reduce Agency Costs? Evidence from the Diversion of Corporate Resources. The Accounting Review, 87 (1): 199–229.
Jensen, M.C. (1986). The Agency Costs of Free Cash Flow: Corporate Finance and Takeovers. American Economic Review, 76 (2): 323–329.
Johnson, S., R. La Porta, F. Lopez-de-Silanes, and A. Shleifer. (2000), Tunneling. American Economic Review, 90: 22–27.
Khan, M., and R. Watts. (2009). Estimation and Empirical Properties of a Firm-year Measure of Accounting Conservatism. Journal of Accounting and Economics, 48 (2-3) 132–150.
Kim, J.-B., R. Chung, and M. Firth. (2003). Auditor Conservatism, Asymmetric Monitoring, and Earnings Management. Contemporary Accounting Research, 20 (2): 323–359.
Kim, J.B., B. Y. Song, and L. Zhang. (2011)a. Internal Control Weakness and Bank Loan Contracting: Evidence from SOX Section 404 Disclosures. The Accounting Review, 86 (4): 1157-1188.
Kim, J.-B., Y. Li, and L. Zhang. (2011)b. CFOs versus CEOs: Equity Incentives and Crashes. Journal of Financial Economics, 101: 713–730.
Krishnan, G. (2003). Does Big 6 Auditor Industry Expertise Constrain Earnings Management?. Accounting Horizons, 17: 1–16.
LaFond, R., and S. Roychowdhury. (2008). Managerial Ownership and Accounting     Conservatism. Journal of Accounting Research, 4: 101–135.
Louis, H., A. Sun, and O. Urcan. (2012). Value of Cash Holdings and Accounting Conservatism. Contemporary Accounting Research, 29 (4): 1249–1271.
Masulis, R., C. Wang, and F. Xie. (2009). Agency Problems at Dual-class Companies. Journal of Finance, 64 (4): 1697–1727.
Myers, S., and R. Rajan. (1998). The Paradox of Iiquidity. Quarterly Journal of Economics
Opler, T., L. Pinkowitz, R. Stulz, and R. Williamson. (1999). The Determinants and Implications of Corporate Cash Holdings. Journal of Financial Economics, 52 (1): 3–46.
Reichelt, K., and D. Wang. (2010). National and Office-specific Measures of Auditor Industry Expertise and Effects on Audit Quality. Journal of Accounting Research, 48 (3): 647–686.