Does Algorithmic Trading Affect Corporate Innovation: Evidence From the Tick Size Pilot

44 Pages Posted: 19 Apr 2021 Last revised: 24 Jun 2021

See all articles by Pawel Bilinski

Pawel Bilinski

City University London - Sir John Cass Business School

Irene Karamanou

University of Cyprus - Department of Public and Business Administration

Anastasia Kopita

University of Warwick - Warwick Business School

Marios A. Panayides

University of Cyprus - Department of Accounting and Finance; University of Pittsburgh - Katz Graduate School of Business

Date Written: September 4, 2021

Abstract

Does the stock price efficiency, i.e. the speed and the extent with which prices reflect public information, affect corporate innovation? Using the intensity of algorithmic trading (AT) to capture price efficiency and the Tick Size Pilot experiment setting, we establish a causal positive relation between AT and innovation measured by patents. The relation is stronger for firms where managerial compensation is more closely linked to the share price performance and for more opaque firms where managerial effort is more difficult to observe from financial information. Our results generalize to other measures of innovation such as R&D spending and the number of citations.

Keywords: algorithmic trading; analyst coverage; earnings forecasts; stock recommendations

JEL Classification: D53; G12; G14; M41

Suggested Citation

Bilinski, Pawel and Karamanou, Irene and Kopita, Anastasia and Panayides, Marios A., Does Algorithmic Trading Affect Corporate Innovation: Evidence From the Tick Size Pilot (September 4, 2021). Available at SSRN: https://ssrn.com/abstract=3823081 or http://dx.doi.org/10.2139/ssrn.3823081

Pawel Bilinski (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Irene Karamanou

University of Cyprus - Department of Public and Business Administration ( email )

1 Panepistimiou Ave.
Nicosia CY-2109
Cyprus
+357 22 893608 (Phone)
+357 22 895475 (Fax)

Anastasia Kopita

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Marios A. Panayides

University of Cyprus - Department of Accounting and Finance ( email )

University of Cyprus
P.O. Box 20537
Nicosia, CY-1678
Cyprus

University of Pittsburgh - Katz Graduate School of Business ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States

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