Investor recognition is the basis of learning market efficiency and resources allocation efficiency; it affects firm value through information diffusion about the fundamentals. As an institutional arrangement for reducing agency cost and information cost, audit impacts firm value through information diffusion. By an empirical testing, we find that reducing agency cost is the basic function of audit in Chinese market. It embodies that the main mechanism of raising firm value through improving audit quality is reducing the agency problem in the firms. It is more important than meeting the information need of investors. We also find that hiring big auditors delivers a positive signal to the investors of the market. It has a positive moderate function on investor recognition effect. So choosing the models of auditing should take the characters of the information diffusion of the firm into account and fit the level of investor recognition of the firms.