The Effect of Audit Quality on Relation between Corporate Governances and Agency Costs in Iran Khalaj Mohammada, Rostami Vahabb aDepartment of Accounting, Kish International Branch, Islamic Azad University, Kish Island, Iran bDepartment of Economics and Social Science, Payame Noor University, Po Box 19395-3697, Tehran, Iran Abstract Current paper is willing to trace the effect of the corporate Governance on improving financial reporting quality and decreasing agency costs. Hence the financial data collected from financial statement of 70 corporations listed for 2007 to 2012 in Tehran Stock Exchange which selected randomly among all of the industries in TSE, was used to test research hypotheses. To evaluate the research variables including corporate governance, agency costs and audit quality we used Shleifer & Vishny multi-criteria model's (1997), Valipour, Moradi and Heshmatzade (2013) respectively and firm size and auditor tenureas agent of audit quality. To remove the effects of unwanted variables like Corporation size, profitability opportunity and financial leverage also entered into the model. The results of the study documented that there is no significant relation between corporate governance and sale efficiency as index of agency costs and also between corporate governance and operational expenses efficiency as another index of agency costs. In the last, we found out that variation in audit quality of the corporation has no significant impact on this relationship too. Top Keywords Corporate Governance, Agency Costs, Sale Efficiency, Operational Expanses Efficiency, Audit Quality. Top |