Filling in the Governance Void: The Voice of Individual Investors

Abstract

We examine investors’ corporate engagements on an online interactive platform that is curated by regulators to encourage the communication between small investors and publicly listed firms. Investors can query for information and voice their criticisms and suggestions in these online engagements. We find that investors’ engagements on the platform increase when the firm shows signs of underperformance, weaker external monitoring by institutional investors, or weaker managerial incentive alignment with shareholders. More active engagements on the platform are associated with more timely enforcement actions against securities fraud. Overall, our findings suggest that individual investors in aggregate manifest incentives to fill in the void of corporate governance when empowered by a conducive regulatory environment.

Keywords: Shareholder Monitoring, Retail Investors, Corporate Governance, Information Demand, Investor Communication

JEL Classification: G10, G23, M40