Financial Leverage, Information Quality, and Efficiency
成果类型：
Article
署名作者：
Nan, Lin; Wen, Xiaoyan
署名单位：
Purdue University System; Purdue University; Texas Christian University
刊物名称：
CONTEMPORARY ACCOUNTING RESEARCH
ISSN/ISSBN：
0823-9150
DOI：
10.1111/1911-3846.12845
发表日期：
2023
页码：
1082-1106
关键词：
摘要：
We examine information quality and financial leverage when an entrepreneur needs financing to undertake a risky project and his effort input affects the project's outcome. We show that information quality and financial leverage interact to play active roles in both investment and effort decisions. Our analysis shows a positive association between leverage and optimal information quality-when leverage is low (high), low (high) information quality is optimal. This is because with low leverage, the entrepreneur is already motivated by his large share of the outcome to exert effort, and high information quality is not efficient as a precise bad signal discourages the entrepreneur's effort. In contrast, when leverage is high and thus the entrepreneur is less motivated by his residual cash flows, high information quality is optimal, because a precise good signal encourages the entrepreneur's effort. Our study highlights the joint effect of information quality and financial leverage on overall efficiency through firms' effort inputs as well as on defining investment efficiency.
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