The Adverse Effect of Information on Governance and Leverage
44 Pages Posted: 27 Jun 2016
Date Written: June 2016
Abstract
We study the effect that internal information systems have upon a firm's leverage and corporate governance choices. Information systems lower governance costs by facilitating more targeted interventions. But they also generate asymmetric information between firms and their investors. As a result, firms may attempt to signal their superior quality by assuming more leverage. In some circumstances, this can reduce governance incentives and result in inferior outcomes. Investors anticipate this effect, and it renders information systems inefficient.
Suggested Citation: Suggested Citation
Laux, Christian and Loranth, Gyongyi and Morrison, Alan, The Adverse Effect of Information on Governance and Leverage (June 2016). CEPR Discussion Paper No. DP11345, Available at SSRN: https://ssrn.com/abstract=2801006
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