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Internal information quality and performance metric selection

Author

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  • Guay, Wayne
  • Kim, Chongho
  • Timmermans, Oscar

Abstract

We examine the role of firms’ internal information quality (IIQ) in designing executive incentive contracts. We find that higher IIQ is associated with a greater number of performance metrics and increased dissimilarity from peer firms’ contracts, particularly along non-financial dimensions. These relations hold when we examine changes in IIQ that are likely induced by plausibly exogenous shifts in two financial accounting standards. We further find that incorporating more numerous and more dissimilar non-financial metrics is positively associated with future profitability, but only when IIQ is high. Our results are consistent with the hypothesis that the quality of a firm’s internal information is a friction in performance metric selection.

Suggested Citation

  • Guay, Wayne & Kim, Chongho & Timmermans, Oscar, 2026. "Internal information quality and performance metric selection," LSE Research Online Documents on Economics 138070, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:138070
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    File URL: https://researchonline.lse.ac.uk/id/eprint/138070/
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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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