The Adverse Effect of Information on Governance and Leverage | Zendy

Christian Laux | Zendy; Gyöngyi Lóránth | Zendy; Alan D. Morrison | Zendy

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The Adverse Effect of Information on Governance and Leverage

Author(s) -

Christian Laux,

Gyöngyi Lóránth,

Alan D. Morrison

Publication year - 2017

Publication title -

management science

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.954

H-Index - 255

eISSN - 1526-5501

pISSN - 0025-1909

DOI - 10.1287/mnsc.2016.2599

Subject(s) - leverage (statistics) , corporate governance , incentive , business , information asymmetry , economics , accounting , industrial organization , microeconomics , finance , computer science , machine learning

We study the effect that internal information systems have upon a firm’s leverage andcorporate governance choices. Information systems lower governance costs by facilitatingmore targeted interventions. But they also generate asymmetric information between firmsand their investors. As a result, firms may attempt to signal their superior quality byassuming more leverage. In some circumstances, this can reduce governance incentivesand result in inferior outcomes. Investors anticipate this effect, and it renders informationsystems inefficient

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