Does Stock Liquidity Shape Voluntary Disclosure? Evidence from the SEC Tick Size Pilot Program

56 Pages Posted: 11 Oct 2021

See all articles by Ole-Kristian Hope

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Junhao Liu

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: October 7, 2021

Abstract

Employing the SEC Tick Size Pilot Program that increases the minimum trading unit of a set of randomly selected small-capitalization stocks, we examine whether and how an exogenous change in stock liquidity affects corporate voluntary disclosure. Using difference-in-differences analyses with firm fixed effects, we find that treatment firms respond to the liquidity decline by issuing fewer management earnings forecasts, while in contrast, control firms do not exhibit a significant change. Next, we show that the effect is more pronounced when firms experience more severe liquidity decreases during the TSPP and rule out a set of alternative explanations. Further strengthening the identification, we find a consistent reversal effect after the end of the pilot program. To generalize our findings, we use voluntary 8-K filings and conference calls as alternative voluntary disclosure proxies and find similar effects. Overall, these findings show how an exogenous change in stock liquidity shapes the corporate information environment.

Keywords: Stock liquidity, voluntary disclosure, management guidance, management earnings forecasts, SEC Tick Size Pilot Program

JEL Classification: G10, G14, G18, G30, G38, M10, M40, M41, M48

Suggested Citation

Hope, Ole-Kristian and Liu, Junhao, Does Stock Liquidity Shape Voluntary Disclosure? Evidence from the SEC Tick Size Pilot Program (October 7, 2021). Available at SSRN: https://ssrn.com/abstract=3938232 or http://dx.doi.org/10.2139/ssrn.3938232

Ole-Kristian Hope (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Junhao Liu

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada

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