Individual investors' reactions to decimalization: Innovation diffusion in financial markets

The theory of diffusion of innovation has received extensive research attention for over half a century. The preponderance of that work, however, has chiefly considered major innovations that are disruptive to behavior of potential adopters. Virtually no empirical investigations, though, have considered predictors of seemingly non-distruptive innovations, despite the call for such empiricism. The present study addresses this issue by examining the impact that five key attributes of innovations has on adopters' reactions to the innovation of a frequently purchased service - financial equities or stocks of publicly traded companies. Using the event of the introduction in the United States of the minimum trading interval (or, tick size) of transacting such stocks in intervals of one penny (an event known in the financial and academic community as “decimalization”) as the innovation under investigation, our results indicate that (a) investors' perceptions of the quality of trading in decimals is associated with relative advantage and observability; (b) investors' attitude toward trading in decimals is related to relative advantage, trialability, and complexity; and (c) investors' likelihood of trading in decimals is associated with relative advantage, trialability, and complexity. Implications of our findings for researchers, regulators, and practitioners are provided.