Internal information quality and financial policy peer effects

Yongda Liu, Carol Padgett, Chao Yin*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This paper investigates how firms' internal information quality (IIQ) influences the peer effects of their financial policies. Using earnings announcement speed and insider trading profitability difference as measurements, we find that when IIQ is low, firms are more likely to change their leverage following a similar change made by peer firms in the same industry. Our further analysis shows that this mimicking behavior hurts firms' operating performance, and is more prevalent when firms are also characterized by poor corporate governance. Overall, our results indicate that poor information quality could amplify the agency problem, therefore leading to stronger peer effects in corporate financial policies.

Original languageEnglish
Article number102357
Number of pages16
JournalInternational Review of Financial Analysis
Volume84
Early online date5 Sep 2022
DOIs
Publication statusPublished - Nov 2022

Keywords

  • financial policy
  • internal information quality
  • peer effects

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