The Disclosure Effect of Liquidity Shocks: A Study of MiFiD II Tick Size Regulation

• In Event: 4.04. Market Structure and Financial Reporting

Abstract

The new MiFiD II regulation put in place by European regulator in January 2018 has harmonized tick sizes among European trading venues. As a result, all European equities have been affected by a liquidity shock. We provide early evidence of the new tick size regime on financial reporting quality. Using a difference-in-difference design, we find an average decrease in the value of discretionary accruals for treated firms relative to control firms. In accordance with existing literature that examines the effect of tick size changes on financial reporting environment, the results are significant and robust in subsequent periods after the introduction of the new tick size regime. Taken together, our results provide novel evidence about the effect of the new tick size regime on firm’s information environment.

Authors

• Marco Errico, ESADE Business School

• Petya Platikanova, ESADE Business School