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The Securities and Exchange Commission’s 2016 Tick Size Pilot Program was a natural experiment that imposed increases in tick size for randomly selected small-cap firms. Using a difference-in-differences research design, we examine the effect of this increase in tick size on earnings guidance. We find that after initiation of the program, treatment firms provide significantly less earnings guidance. We provide further evidence that this decrease is driven by increases in investors’ fundamental information acquisition and in firms’ financial reporting quality, consistent with firms reducing earnings guidance when investors are already more informed. The decrease is stronger for firms with higher proprietary costs of disclosure, consistent with firms being more likely to reduce costly disclosure when investors are more informed. In contrast, the decrease is weaker for firms with greater external financing needs, consistent with these firms continuing to seek the benefits of disclosure, even when investors are more informed. Taken together, our results suggest that an increase in tick size makes investors more informed, which, in turn, reduces the need for firms to provide earnings guidance, though the extent of the reduction depends on the costs and benefits of providing earnings guidance.

Credit default swaps (CDSs) are a major financial innovation related to debt contracting. Because CDS markets facilitate bad news being incorporated into equity prices via cross-market information spillover, CDS availability may curb firms’ information hoarding. We find that CDS trading on a firm’s debt reduces the future stock price crash risk. This effect is stronger in active CDS markets, when the main lenders are CDS market dealers with securities trading subsidiaries, or when managers have more motivation to hoard information. Our findings suggest that debt market financial innovations curtail the negative equity market effects of firms withholding bad news.

International Financial Reporting Standard (IFRS) 9 is of practical relevance to banks because it requires intense monitoring of borrowers to record timely loan losses. Using data from 50 countries, we find that accounting-driven bank monitoring due to IFRS 9 adoption reduces firms’ reliance on bank debt relative to public debt. This finding is consistent with firms experiencing more costly bank monitoring after a shift in regulatory reporting that requires banks to monitor borrowers more intensely. In further analyses, we find that the negative effect of IFRS 9 adoption on bank debt reliance is more pronounced with more stringent regulatory supervision of banks, consistent with regulatory stringency exacerbating costly bank monitoring for firms. We also find that the negative effect is stronger when firms can more easily switch from bank debt to public debt financing, consistent with the relevance of switching costs in firms’ decisions to avoid costly bank monitoring.

Customer referencing is a strategy that firms can use to disclose their connections with reputable customers as a means of enhancing their own reputations. We study the capital market benefits of naming reputable nonmajor customers in firms' financial reports to provide empirical evidence on whether this form of customer referencing has important practical implications. We predict and find that firms enjoy a lower cost of equity when they engage in customer referencing in their financial reports, consistent with the argument that this form of voluntary disclosure increases investor attention and customer certification. In cross-sectional analyses, we predict and find that the benefits of customer referencing are more pronounced for firms that (1) lack major customers or reputable major customers, (2) name customers whose reputations exceed their own, and (3) face higher competition. Overall, our study provides evidence that communicating certain interorganizational connections can generate capital market benefits for disclosing firms.