In Finance, What Are Quality Options?

The quality of financial information refers to the authenticity, completeness, and relevance of providing financial information users with relevant information about the company's financial status and operating results.

Financial Information Quality

Right!

The quality of financial information refers to the authenticity, completeness, and relevance of providing financial information users with relevant information about the company's financial status and operating results.

Chinese name

Financial Information Quality

Foreign name

Quality of financial information

Nature

Economic terms

Be applicable

enterprise

I. Impact of equity structure on the quality of financial information ^[1]

The issue of corporate governance is a matter of institutional arrangement. The effectiveness of corporate governance structure depends on the scientific nature of institutional arrangements. Based on the above analysis of the impact of corporate governance on the quality of financial information, the following countermeasures are proposed to restructure and improve the corporate governance structure, thereby improving the quality of financial information. ^[1]

The world's first corporate governance research report, The Report on Corporate Governance Finance (TheCadbury Repoa), is considered to have a profound impact on the establishment and development of financial governance theory. The content of this report shows the close link between the quality of financial information and financial governance. ^[2]

1. High-quality financial information is the basis for the effective operation of the financial governance mechanism. One of the fundamental reasons for the financial governance problems of listed companies is incomplete contracts (asymmetric information). The incomplete contract between stakeholders is essentially caused by information asymmetry. Therefore, it can be said that information asymmetry is the root cause of financial governance.

Financial information is extremely important for the financial governance of listed companies and the protection of property rights of stakeholders. As the output of financial information, an economic information system, in addition to reflecting and supervising the process of wealth creation, another important function is to alleviate information asymmetries inside and outside the company and between parties within the company and coordinate the parties to the contract Between interests.

In the formation and operation of financial governance, financial information plays an important role. High-quality financial information maintains the balance of financial rights among stakeholders. However, high-quality financial information does not exist independently of corporate financial rights. In fact, the quality of financial information is an important part of financial governance issues. High-quality financial information is the basis for the effective operation of internal and external financial governance mechanisms, and it plays an important role in the optimization and implementation of financial governance structures, mainly reflected in:

(1) High-quality financial information can reduce the incompleteness of the contract, thereby reducing the occurrence of financial governance issues;

(2) High-quality financial information is conducive to the optimal allocation and effective implementation of corporate financial rights;

(3) High-quality financial information is the basis for financial decisions of stakeholders;

(4) High-quality financial information is conducive to the supervision and evaluation of various entities in financial governance;

(5) High-quality financial information is conducive to the design and implementation of incentive mechanisms.

2. A sound financial governance structure is the fundamental guarantee of the quality of financial information. Because high-quality financial information only reduces the problem of information asymmetry to a certain extent, the distribution of information about financial information and its quality between clients and agents still exists. Symmetrical problems, which make it possible for agents to disclose financial information according to their own wishes, resulting in poor quality of financial information and difficult to protect the interests of clients. Financial governance guarantees the quality of financial information and its disclosure through a set of formal or informal, internal or external institutional arrangements.

(1) From the perspective of internal financial governance, financial governance is mainly about the financial rights relationship between the owner and the operator, and the arrangements made in terms of systems and institutions to maintain this relationship, mainly as shareholders At the conference, the board of directors, the board of supervisors, and the managerial level, these financial entities will affect the quality of financial information and its disclosure. For example, the shareholders' meeting has the right to review and approve the company's annual financial budget plan, and has the right to make decisions on major financial matters such as the use of an accounting firm, which have a significant impact on the quality of financial information.

Smith and Wame (1979) pointed out that with the increase of the level of shareholder-creditor agency conflicts, the motivation of operators to provide high-quality financial information has gradually increased. In a research report released by the BlueRibbon Committee in 1999, a proper and well-functioning financial information control system was only available when the board of directors included the audit committee, senior financial managers, and the internal auditor and external auditors May form. It can be seen from the conclusion of the study that the internal financial governance of a company is closely related to the quality of financial information.

(2) From the perspective of external financial governance, external financial governance is the influence of persons or organizations outside the company on the distribution of financial rights of the company, mainly including the influence of external shareholders such as small and medium shareholders, securities markets, and manager markets.

The securities market plays an important role in the distribution of financial ownership in the company's financial governance. Small and medium shareholders, as the company's financial owner, exercise financial governance rights by buying and selling stocks on the securities market. The impact of the two on information quality and information disclosure is as follows: the securities market is the company's main regulator of information quality, supervises information disclosure behaviors, evaluates the quality of company information disclosure, and investigates and punishes illegal information. Small and medium shareholders are the main demanders of information quality. The information disclosed by Xin of listed companies is mainly for small and medium shareholders, in order to meet the information needs of small and medium shareholders' investment decisions.

The impact of the manager's market on corporate financial governance is mainly achieved by monitoring the behavior of managers. The manager market is a special market because people are not commodities, but in a market economy, senior management talents with good rational talents and experience are also valuable.

Managers trade in the market with their own business management skills and good reputation. When a manager cannot guarantee the quality of financial information or even disclose false information, it will affect his reputation in the manager's market and reduce his own value. This will encourage managers to consciously control the quality of financial information and improve the quality of overall information disclosure.