Relation between Audit Quality and Investment Efficiency in Firms with High Investment Opportunities

With regard to limitation of, resources thus, increased importance of investment efficiency, the relation between audit quality and investment efficiency in firms with high investment opportunities, has been investigated in this paper. Generally, investment efficiency (inefficiency) means accepting projects with positive net present values and rejecting projects with negative net present values. Investment efficiency is measured by changes in non-current assets, and changes in long-term investments. Firms with high investment opportunities, is determined by factor analysis on three measures, market-to-book asset, market-to-book equity and gross property, plant and equipment ratio. Results from studying 119 listed firms in Tehran Stock Exchange during a period of 2003 to 2009, indicate that firms with high investment opportunities, use high quality auditors, have experienced high level of investment efficiency. While, on the contrary to our expectation, high audit quality, has no effect on decreased manipulation of discretionary accruals.