Does stock liquidity shape voluntary disclosure? Evidence from the SEC tick size pilot program

Review of Accounting Studies · 2023 · Volume 28 · Issue 4

Abstract

Employing the SEC Tick Size Pilot Program, which 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

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