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Review of Accounting Studies

, Volume 23, Issue 3, pp 1207–1240 | Cite as

Corporate governance roles of information quality and corporate takeovers

  • Jing Li
  • Lin Nan
  • Ran Zhao
Article
  • 432 Downloads

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 current shareholders’ expected payoff maximization or expected firm value maximization. Furthermore, current shareholders prefer a lower level of information quality than the level that maximizes expected firm value, because of a misalignment between current shareholders’ value and total firm value. We also analyze the impact of antitakeover laws, and find that the passage of antitakeover laws may induce current shareholders to choose a higher level of information quality and thus increase expected firm value.

Keywords

Corporate takeovers Information quality Antitakeover law Takeover efficiency 

JEL Classification

G34 G38 M41 

Notes

Acknowledgments

We thank the editor, Stefan Reichelstein, and two anonymous referees for their constructive comments. We also thank Tim Baldenius, Anne Beyer, Judson Caskey, Carlos Corona, Jon Glover, Ilan Guttman, Mirko Heinle, John Hughes, Bjorn Jorgensen, Pierre Liang, John O’Brien, Ram Ramanan, Stefano Sacchetto, Jack Stecher, seminar participants at Carnegie Mellon University and New York University, participants at the 2012 Junior Accounting Theory Conference, and participants at the 2013 Financial Accounting and Reporting Section meeting for helpful comments.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Faculty of Business and EconomicsUniversity of Hong KongPokfulamHong Kong
  2. 2.Krannert School of ManagementPurdue UniversityWest LafayetteUSA
  3. 3.The George L. Argyros School of Business and EconomicsChapman UniversityOrangeUSA

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