The Adverse Effect of Information on Governance and Leverage

44 Pages Posted: 27 Jun 2016

See all articles by Christian Laux

Christian Laux

Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF); European Corporate Governance Institute (ECGI)

Gyongyi Loranth

University of Vienna; Centre for Economic Policy Research (CEPR)

Alan D. Morrison

University of Oxford - Said Business School; University of Oxford - Merton College

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

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

Christian Laux (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Gyongyi Loranth

University of Vienna ( email )

Vienna

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Alan Morrison

University of Oxford - Said Business School ( email )

Department of Finance
Park End Street
Oxford OX1 1HP
United Kingdom
+44 18 6527 6343 (Phone)
+44 18 6527 6310 (Fax)

University of Oxford - Merton College

Merton Street
Oxford OX1 4JD
United Kingdom
+44 18 6527 6343 (Phone)

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