The impact of Audit Quality on Agency Cost An empirical study on construction sector

Abstract

Purpose- This study aimed to empirically examine the impact of audit quality on the agency cost. Design/methodology/approach- The secondary data collected from the financial statements and annual reports of 10 companies in the construction sector listed in the Egyptian stock exchange market from 2014 until 2018. The data were from investing, Mubasher Egypt and official websites of the companies. The independent variable audit quality was measured by dummy variable if the auditor from the Big Four or zero otherwise, the dependent variable agency cost proxied by asset utilization ratio turnover, leverage measured by total liabilities divided by total assets, and the firm size measured by natural log of total assets. Variables were analyzed using the descriptive, correlation and regression analysis using of SPSS. Findings- The study provided evidence of a positive significant impact of audit quality on assets utilization. Firm growth is found to have a significant positive effect on agency costs. However, the study failed to find a significant effect for firm’s leverage on the utilization of its assets.