Abstract/Summary

Information quality is crucial for firms’ operations and financial markets’ efficiency. The internal information quality within the organization determines the efficiency and quality of headquarters’ decision making, while the quality of information disclosed to the public will impact the interests of both shareholders and stakeholders. This thesis attempts to explore the determinants of firms’ information quality and its economic consequences. The first empirical chapter answers the question of how firms’ internal information quality (IIQ) impacts their capital structure peer effects. The results indicate that when firms’ internal information is worse, they are more likely to mimic peers’ capital structure. This mimicking behaviour will impair the future profitability for those firms with bad IIQ. Our further analyses show that the effect is more exhibited in firms with lower corporate governance, which indicates that IIQ’s moderating role on peer effects is driven by the agency problem between managers and shareholders. The second empirical chapter studies how firms’ dividend smoothing behaviour affect the quality of information disclosed to the public, and then affect the crash risk of the firm. The results suggest that the higher level of dividend smoothing will lead to higher crash risk. In further analysis, the results also show that the effect is driven by dividend smoothing’s direct influence on firms’ information asymmetry instead of its influence on earnings management. In addition, the effect is exhibited more in economies with a lower level of investor protection and weaker institutional quality. The last empirical chapter explores how customer bargaining power affects firms’ IIQ. The results indicate that firms with more powerful customers are associated with better IIQ. This association is driven by the causal effect between customer bargaining power and suppliers’ IIQ. The results also show that the effects are more exhibited in suppliers, whose customers have higher monitoring incentives.