M.A. Thesis:

Compare the relationship between earnings quality and cost of equity in the two model of Ohlson and Nauroth with Easton

The cost of equity, as a criteria for the evaluation of the financial performance of the companies can be regarded as a base for the stockholders and the investors to make decisions. The management of the company shall determine the financing expenses along with financing and specify the factors affecting it.The purpose of this study is effect of profit quality on the equity's expenses based on two Olson-North and Watson models. For this purpose, information of 100 companies active at Tehran Stock Exchange during 2010-2014 were gathered and analyzed by Eviews. The research method sticks to the multivariate regression and panel data. According to the results of the study and the statistical tests it can be said that there is a negative and significant relationship between the profit quality and the cost of equity based on the Olson –North and Eston models. In other words, the high profit quality reduces the cost of equity. With regard to this determining coefficient of the Olson-North is higher than the Eston model, therefore, the determining power of Olson-North is higher as compared with Eston model.

Keywords: Cost of Equity, Olson-North Model, Eston Model, Profit Quality