*Corresponding author. E-mail addresses: sr.ghazi@yahoo.com (S. R. Ghazi Fini) © 2013 Growing Science Ltd. All rights reserved. doi: 10.5267/j.msl.2013.05.012 Management Science Letters 3 (2013) 1719–1724 Contents lists available at GrowingScience Management Science Letters homepage: www.GrowingScience.com/msl An investigation on the effects of the profit quality structures on Iranian Co. capital cost Hassan Ghodrati a , Seyed Reza Ghazi Fini b* and Kashaninezhad Abyaneh Mustafa a a Department of Accounting & Management, Kashan Branch, Islamic Azad University, Kashan, Iran b MA in Accounting of Kohgiloye and Boyerahmad Science and Research Branch, Islamic Azad University, Iran C H R O N I C L E A B S T R A C T Article history: Received February 15, 2013 Received in revised format 3 May 2013 Accepted May 4 2013 Available online May 6 2013 This paper evaluates the effect of profit quality structures on capital cost and the primary objective is to disclose the effect to investors. The research methodology is practical based on its goal and its research design is Expose-Facto. The study selects 36 Iranian firms as statistical sample over the period 2006-2010 from some Iranian firms and the study selects post performances from their financial reports. The statistical parameters, statistical plots, multiple- variables linear-regression and correlation analysis are implemented for data analysis. The results show that the estimated model could explain 22 percentages of variable changes. This means that there is a weak linear relationship between cost of capital and profit persistence, profit predictability and other variables. Based on the regression estimation we concluded that there was a direct relationship between earnings persistence and cost of capital and there was a reverse relationship between earnings predictability and cost of capital. © 2013 Growing Science Ltd. All rights reserved. Keywords: Earnings quality structures Earnings persistence Earnings predictability Cost of equity 1. Introduction During the past few years, we have witnessed a number of corporate scandals created the public perception that accounting information provided in a corporate culture fixated on stock price performance could not be trusted. While media attention has concentrated on a few high-profile cases of fraudulent accounting schemes, e.g., at Enron and WorldCom, recent empirical studies imply that the practice of earnings management is prevalent among publicly traded firms. The findings show that firms manage earnings to influence stock market perceptions, to increase management’s compensation, to reduce the likelihood of violating lending agreements, and to prevent regulatory intervention. In this paper, we perform an investigation on the role of earnings management in affecting a firms’ cost of capital. Given the relative importance of a firm’s cost of capital for a variety of corporate decisions, from determining the hurdle rate for investment projects to influencing the composition of the firm’s capital structure, it is surprising that the link between cost of capital and earnings management has received little attention. To date, the theoretical literature has primarily