Report Title: Does the Relation between InformationQuality and Capital Structure Vary with Cross-Country Institutional Differences?
Reporter(Institution): JEFF ZEYUN CHEN （Leeds School of Business, University of Colorado at Boulder, Assistant Professor
Time: 03:00.pm,22th September, 2013
Location: B-201, Building of Economics & Management, Jiulonghu Campus
Abstract: Prior research based on U.S. data finds that firms with better information quality raise more equity whereas firms with poorer information quality issue more debt when they seek external financing. However, little is known about whether similar results hold outside the U.S. and how a country’s institutional environment influences the relation between information quality and capital structure choices. We examine the relation between accounting information quality (measured by earnings precision, accruals quality, and analyst consensus) and financial leverage across 40 countries and whether that relation varies systematically with country-level investor protection and financial orientation. We document a lower level of financial leverage for firms with better information quality. In addition, we find a stronger relation between information quality and financial leverage in weaker investor protection and more market-oriented countries. These cross-country results suggest that information quality is more important in shaping a firm’s capital structure decision when investor demand for information is greater.
