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

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.     

Large Stakes and Big Mistakes

Workers in a wide variety of jobs are paid based on performance, which is commonly seen as enhancing effort and productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards can, in some cases, result in a decline in performance. To test whether very high monetary rewards can decrease performance, we conducted a set of experiments in the U.S. and in India in which subjects worked on different tasks and received performance-contingent payments that varied in amount from small to very large relative to their typical levels of pay. With some important exceptions, very high reward levels had a detrimental effect on performance.     

Target Setting in Hierarchies: The Role of Middle Managers

We explore how a supervisor's hierarchical rank affects the extent to which employees’ targets reflect their past performance. Literature documents that supervisors do not fully ratchet targets for past performance, arguably because the commitment not to penalize successful employees with more difficult targets alleviates the severity of the ratchet effect. We argue that commitment is less credible in organizational hierarchies where a middle manager sets employees’ targets. Using data from an organization comprised of three hierarchical layers, we consistently find that a middle manager's exposure to performance pressure is positively associated with the ratcheting of the employees’ targets. Moreover, we show that management at headquarters reduces a middle manager's performance pressure when most of her employees missed their targets in the previous period. Overall, the results imply that the hierarchical rank is an important determinant of the credibility of a supervisor's commitment to deemphasize past performance in target setting.     

The Influence of Nutrition Information on Choice: The Roles of Temptation,Conflict and Self-Control

This study investigated the impact of nutrition information on consumers' choice of a cake and examined the roles of key psychological decision factors. Based on a generalized linear model, results of an experiment on 299 female consumers in the United Kingdom showed that the presence of nutrition information in the form of Guideline Daily Amount (GDA) had a direct impact on food choice. GDA information had a moderating effect on the relationship between two psychological factors (conflict and self-control, but not temptation) and consumer choice. Temptation, conflict and self-control had direct effects on choice.     

THE DANISH GENDER WAGE GAP IN THE 1980s: A PANEL DATA STUDY

In Denmark the equal pay act was put into force in 1976, butthe relative pay of female workers is still considerably belowthe level of male workers in most occupational and educationalgroups, and the decline of the aggregate gender wage gap seemsto have stagnated since the late 1970s. In this study differentexplanations of this evidence are investigated empirically basedon the estimation of a human capital model on a panel sampleof Danish wage earners observed during the period 1979–90.