The relationship between earnings quality and cost of capital of the listed companies in Jordan : an agency theory perspective

Abstract EN

The study aimed to provide empirical evidence derived from the reality of the Jordanian environment about the earnings quality and the cost of capital using Asymmetric Information Model, and how this relationship is affected by other variables that are related to agency theory such as the administrative equity ratio and the degree of unsystematic risk.

The population of the study consisted of all public shareholding companies in the industrial, service and real estate sectors.

Data was collected from a sample of 102 companies during the period (2008–2012).

The study variables were calculated based on Jones scale that was developed by Dechow et al.(1995) to measure earnings quality and the model relative effectiveness of the price in the scale of Asymmetric Information Model.

The dependent variable represented in the cost of the capital was calculated based on the capital costing model.

The results of the study supported the hypothesis of the reverse impact of earnings quality weighted by asymmetric information in the cost of the capital.

The results have shown an improvement in the interpretative value of the model when entering the auditing variable represented by the administrative equity ratio or the degree of unsystematic risk, also of the controversial results of the study the emergence of an impact of equity of debt in the cost of the capital