The Adverse Effect of Information on Governance and Leverage

Christian Laux, Gyöngyi Loranth, Alan D. Morrison

Publication: Scientific journalJournal articlepeer-review

Abstract

We study the effect that internal information systems have on 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.
Original languageEnglish
Pages (from-to)1510 - 1527
JournalManagement Science (MS)
Volume64
Issue number4
DOIs
Publication statusPublished - 2018

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