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Article: Tick Size and Earnings Guidance in Small-Cap Firms: Evidence from the SEC’s Tick Size Pilot Program
Title | Tick Size and Earnings Guidance in Small-Cap Firms: Evidence from the SEC’s Tick Size Pilot Program |
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Authors | |
Issue Date | 27-Sep-2023 |
Publisher | Institute for Operations Research and Management Sciences |
Citation | Management Science, 2023 How to Cite? |
Abstract | The Securities and Exchange Commission’s 2016 Tick Size Pilot Program was a natural experiment that imposed increases in tick size for randomly selected small-cap firms. Using a difference-in-differences research design, we examine the effect of this increase in tick size on earnings guidance. We find that after initiation of the program, treatment firms provide significantly less earnings guidance. We provide further evidence that this decrease is driven by increases in investors’ fundamental information acquisition and in firms’ financial reporting quality, consistent with firms reducing earnings guidance when investors are already more informed. The decrease is stronger for firms with higher proprietary costs of disclosure, consistent with firms being more likely to reduce costly disclosure when investors are more informed. In contrast, the decrease is weaker for firms with greater external financing needs, consistent with these firms continuing to seek the benefits of disclosure, even when investors are more informed. Taken together, our results suggest that an increase in tick size makes investors more informed, which, in turn, reduces the need for firms to provide earnings guidance, though the extent of the reduction depends on the costs and benefits of providing earnings guidance. |
Persistent Identifier | http://hdl.handle.net/10722/337421 |
ISSN | 2023 Impact Factor: 4.6 2023 SCImago Journal Rankings: 5.438 |
DC Field | Value | Language |
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dc.contributor.author | Chen, Yangyang | - |
dc.contributor.author | Ng, Jeffrey | - |
dc.contributor.author | Ofosu, Emmanuel | - |
dc.contributor.author | Yang, Xin | - |
dc.date.accessioned | 2024-03-11T10:20:44Z | - |
dc.date.available | 2024-03-11T10:20:44Z | - |
dc.date.issued | 2023-09-27 | - |
dc.identifier.citation | Management Science, 2023 | - |
dc.identifier.issn | 0025-1909 | - |
dc.identifier.uri | http://hdl.handle.net/10722/337421 | - |
dc.description.abstract | <p>The Securities and Exchange Commission’s 2016 Tick Size Pilot Program was a natural experiment that imposed increases in tick size for randomly selected small-cap firms. Using a difference-in-differences research design, we examine the effect of this increase in tick size on earnings guidance. We find that after initiation of the program, treatment firms provide significantly less earnings guidance. We provide further evidence that this decrease is driven by increases in investors’ fundamental information acquisition and in firms’ financial reporting quality, consistent with firms reducing earnings guidance when investors are already more informed. The decrease is stronger for firms with higher proprietary costs of disclosure, consistent with firms being more likely to reduce costly disclosure when investors are more informed. In contrast, the decrease is weaker for firms with greater external financing needs, consistent with these firms continuing to seek the benefits of disclosure, even when investors are more informed. Taken together, our results suggest that an increase in tick size makes investors more informed, which, in turn, reduces the need for firms to provide earnings guidance, though the extent of the reduction depends on the costs and benefits of providing earnings guidance.</p> | - |
dc.language | eng | - |
dc.publisher | Institute for Operations Research and Management Sciences | - |
dc.relation.ispartof | Management Science | - |
dc.rights | This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. | - |
dc.title | Tick Size and Earnings Guidance in Small-Cap Firms: Evidence from the SEC’s Tick Size Pilot Program | - |
dc.type | Article | - |
dc.identifier.doi | 10.1287/mnsc.2023.4930 | - |
dc.identifier.eissn | 1526-5501 | - |
dc.identifier.issnl | 0025-1909 | - |