Informed Investors and Earnings Guidance : Evidence from SEC Tick Size Pilot Program

The 2016 Tick Size Pilot Program is an exogenous shock that incentivized fundamental investors to become more informed by acquiring fundamental firm information. Building on these studies, we examine the effect of the pilot program on earnings guidance. We find that the treatment firms experience a significant decrease in earnings guidance after initiating the pilot program. This finding suggests that increased tick sizes encourage investor information acquisition, which reduces information asymmetry between the firm and its investors, and consequently the firm’s need to issue earnings guidance. Furthermore, we identify that the decrease in earnings guidance is stronger in the presence of market participants who are more inclined to acquire firm information. We also determine that the pilot program’s effect on reducing earnings guidance is more pronounced for firms with higher proprietary costs of disclosure