Internal information quality and performance metric selection

Wayne Guay, Chongho Kim and Oscar Timmermans

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: executive compensation; information environment; managerial incentives; contract (search for similar items in EconPapers)
JEL-codes: D82 J33 M12 M41 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2026-08-31
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Published in Journal of Accounting and Economics, 31, August, 2026, 82(1). ISSN: 0165-4101

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