Tick Size and Financial Reporting Quality in Small-Cap Firms: Evidence from a Natural Experiment

• 成果类型: Article
• 署名作者: Ahmed, Anwer S.; Li, Yiwen; Xu, Nina
• 署名单位: Texas A&M University System; Texas A&M University College Station; University of Connecticut
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12331
• 发表日期: 2020
• 页码: 869-914
• 关键词: earnings management; liquidity provision; accounting quality; STOCK LIQUIDITY; INFORMATION; accruals; prices; RISK; TRANSPARENCY; determinants

摘要

Using a natural experiment (the SEC's 2016 Tick Size Pilot Program), we investigate the effects of an increase in tick size on financial reporting quality. The tick size pilot program reduces algorithmic trading (AT) and increases fundamental investors' information acquisition and trading activities. This in turn increases the scrutiny of managers' financial reporting choices and reduces their incentives to engage in misreporting. Using a difference-in-differences research design, we find a significant decrease in the magnitude of discretionary accruals, a significant reduction in the likelihood of just meeting or beating analysts' forecasts, and a marginally significant decrease in restatements for the treated firms in the pilot program. Furthermore, we find that the change in financial reporting quality is concentrated in treated firms experiencing decreases in AT and increases in information acquisition activities. We also find that the mispricing of accruals is significantly lower for treated firms. Taken together, our results suggest that an increase in tick size has a causal effect on firms' financial reporting quality.