Do You Hear the People’s Saying? Retail Investor Activism

Topic:

Do You Hear the People’s Saying? Retail Investor Activism

Time&Date: 

 15:00 - 16:30, 2019/12/06 (Friday)

Venue:

 Room 619, Teaching A

Speaker:

Prof. George Yang (Chinese University of Hong Kong)

Abstract:

In a setting where market regulators provide supportive measures, we study whether and when retail investors turn more active in engaging with firm management and whether such engagement has economic consequences. We find that, consistent with retail investors’ general inclination to free-ride on sophisticated investors for corporate governance, they become more active in interacting with management when institutional investors, especially the active ones, withdraw from the firm: They are more proactive in requesting information from management. At the same time, they are more likely to lodge complaints about and offer suggestions and advice to management. Other than information about firm performance and stock prices, retail investors also enquire about various fundamental issues such as corporate governance, accounting treatments, business operation, material transactions, and macro-policy effects. In addition, retail investors also become more active after the firm experiences poor performance, namely, when the firm faces urgency for performance improvement and they are left behind by sophisticated investors due to their information disadvantage and the disposition effect. Finally, retail investors seem to possess information about a firm’s ongoing fraud and their active engagement with the firm helps shorten the duration of the fraud.