The Corporate Governance Roles of Information Quality and Corporate Takeovers

42 Pages Posted: 25 Jun 2012 Last revised: 17 Jun 2018

See all articles by Jing Li

Jing Li

The University of Hong Kong - School of Business

Lin Nan

Purdue University

Ran Zhao

Chapman University

Date Written: November 12, 2014

Abstract

We examine the corporate governance roles of information quality and the takeover market with asymmetric information regarding the value of the target firm. Increasing information quality improves the takeover efficiency, however, a highly efficient takeover market also discourages the manager from exerting effort. We find that perfect information quality is not optimal for either the current shareholders' expected payoff maximization or the expected firm value maximization. Furthermore, the current shareholders prefer a lower level of information quality than the level that maximizes the expected firm value, because of a misalignment between the current shareholders' welfare and the total firm value. We also analyze the impact of anti-takeover laws, and we find that the passage of anti-takeover laws may induce the current shareholders to choose a higher level of information quality and thus increase the expected firm value.

Keywords: Corporate takeovers, Information quality, Antitakeover law, Takeover efficiency

JEL Classification: G34, G38, M41

Suggested Citation

Li, Jing and Nan, Lin and Zhao, Ran, The Corporate Governance Roles of Information Quality and Corporate Takeovers (November 12, 2014). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2091619 or http://dx.doi.org/10.2139/ssrn.2091619

Jing Li (Contact Author)

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

Lin Nan

Purdue University ( email )

100 S Grant St
West Lafayette, IN 47907
United States
7654960551 (Phone)

Ran Zhao

Chapman University ( email )

Orange, CA 92866
United States

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