The Corporate Governance Roles of Information Quality and Corporate Takeovers
42 Pages Posted: 25 Jun 2012 Last revised: 17 Jun 2018
Date Written: November 12, 2014
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: Suggested Citation