The Power of Retail Investor Voice: The Effect of Online Discussions on Corporate Innovation
| Published date | 01 October 2023 |
| Author | Yi Li,Wei Zhang |
| Date | 01 October 2023 |
| DOI | http://doi.org/10.1111/1467-8551.12674 |
British Journal of Management, Vol. 34, 1811–1831 (2023)
DOI: 10.1111/1467-8551.12674
The Power of Retail Investor Voice: The
Effect ofOnline Discussions on Corporate
Innovation
Yi Li1and Wei Zhang2,3
1School of Management and Economics, Beijing Institute ofTechnology, Beijing, China, 2College of
Management and Economics, Tianjin University, Tianjin, China, and 3China Center for Social Computing and
Analytics, Tianjin, China
Corresponding author email: yili@bit.edu.cn
This paper studies how the voice of retail investors inuences corporate innovation. Ex-
amining the relation between postings on Internet stock message boards and rms’ in-
novation output, we nd that individual investors’ online discussions can promote inno-
vation. To establish causality, we use a quasi-natural experiment based on the launch
of the mobile application for stock message boards with the subsample analysis and the
difference-in-differences analysis. Three economic mechanisms underlying our ndings
are identied: online discussions can improve rms’ transparency, corporate governance
and market misvaluation. Our ndings broadenthe understanding ofindividualinvestors’
and social media’s roles in corporate governance.
Introduction
Innovation is a vital determinant not only for the
long-run comparative advantage of companies,
but also for the long-term economic growth of
countries (Solow, 1957). Given that innovative
projects, which involve applying new methods,
developing new technologies and providing new
services or goods, are usually full of uncertainty
and easy to fail (Hirshleifer, Low and Teoh, 2012;
Holmström, 1989), to what extent investors affect
rm-level innovation receives signicantt atten-
tion. A large body of literature investigatesthe role
of institutional investors in spurring corporate
innovation (Aghion, Van Reenen and Zingales,
2013; Brav et al., 2018; Bushee, 1998; Cumming,
Peter and Tarsalewska, 2020; Gu, Mao and Tian,
The authors thank the Editor-in-Chief and three anony-
mous referees for their constructive suggestions. This
work is supported by the NationalNatural Science Foun-
dation of China (Grant Nos 71790594, 92046024 and
U1811462).
2017; Luong et al., 2017). Unlike institutional
investors, retail investors are generally believed to
have negligible power over corporate governance
and be vulnerable to managerialexpropriation (La
Porta et al., 2000; Shleifer and Vishny, 1997). This
is primarily due to their limitations in collecting
information and expressing views (Ang et al.,
2021; Cassell, Kleppe and Shipman, 2021). How-
ever, the rise of social media, especially Internet
stock message boards, offers them new access to
gathering rm-relevant information and speaking
up for themselves,1empowering them to exert
inuence on managerial decision-making (Ang
1The recent GameStop mania is a good example to illus-
trate how powerfulretail investors would be if they acted
in unison with the help of social media platforms (e.g. the
ʻwallstreetbets’ Reddit chat room). According to a news
report from CNBC, a band of Reddit-obsessed individ-
ual investors pushed the stock of GameStop up by 1500%
in 2 weeks by piling into shares and call options, which
squeezes out short-selling hedge funds.
© 2022 British Academy of Management.
1812 Li and Zhang
et al., 2021).2Therefore, whether they can pro-
mote or impede corporate innovation via writing
comments on stock message boards seems to be
worth exploring.3
We consider China a suitable setting for testing
the above competing hypotheses. First, unlike the
US market, which has a large proportion of in-
stitutional investors, the Chinese market is dom-
inated by retail investors (e.g. Ang et al., 2021).4
Second, perhaps because of its largest population
in the world, rapid development in the stock mar-
ket and signicant expansion of the Internet user
base, stock message boards (especially those on
Guba.EastMoney.com) in China are relatively ac-
tive (Huang, Qiu and Wu, 2016). Hence, the im-
pact of retail investors on corporate innovation
via discussions on Internet stock message boards
might be easy to observe in China. Additionally,
China has achieved spectacular and exceptional
growth performance, but its economy has reached
a crossroads recently (Wei, Xie and Zhang, 2017).
As the main engine of development, innovation
appears to be particularly critical to China in tran-
sition. Thus, what boosts rm-level innovation is
worth investigating on its own for China.
We develop two competing hypotheses regard-
ing how small investors’opinions on stock message
boards affect corporate innovation. Recent studies
demonstrate that postings on Internet stock mes-
sage boards can enhance rm transparency by fa-
cilitating the incorporation of rm-specic infor-
mation into stock prices (Chen et al., 2014; Ding,
Zhou and Li, 2019; Jame et al., 2016). Meanwhile,
2The executives of listed rms do pay attention
to social media content. For instance, the Hand-
book of Information Disclosure for Firm Manage-
ment (http://www.szse.cn/certicate/maind/mainrules/
P020180328465749555003.pdf), issued by the Shenzhen
Stock Exchange in 2015, species how rm management
reacts to investors’ comments on stock message boards.
Some companies (e.g. Fujian Sangang Minguang Co.,
Ltd) also develop rules to standardize how to respond to
postings on stock message boards.
3Small investors do care about the innovation perfor-
mance of listed rms as there are a number ofpostings
focused on rms’ patents, technologies, etc. on stock mes-
sage boards. We provide some examples in AppendixE.
4According to the annual report of the Shanghai Stock
Exchange, one of the main stock exchanges in China, re-
tail investors account for99.78% ofall investors but hold
21.17% of total market value. In addition, retail investors
contribute 85% of daily trading volume on the exchange
(Jones et al., 2021).
previous literaturealso recognizes the role ofsmall
investors in corporate governance and links retail
investors to marketmisvaluation (Ang et al., 2021;
Barber and Odean, 2000; Brav, Cain and Zytnick,
2021; Chen, Ke and Yang, 2013; Hvidkjaer, 2008;
Jiang et al., 2021; Odean, 1999). Given that rms
with low information asymmetry, good corporate
governance practices and high market misvalua-
tion typically have good innovation performance
(Brown and Martinsson, 2019; Dong, Hirshleifer
and Teoh, 2021; Luong et al., 2017; Mazouz and
Zhao, 2019; Zhong, 2018), weconjecture that retail
investor voice could encourage rm innovation.
Our second hypothesis predicts that discus-
sions on stock message boards could stie rm
innovation. For one thing, retail investors are
arguably more myopic and naïve (Barber and
Odean, 2000; Barber et al., 2009; Malmendier
and Shanthikumar, 2007). Their comments could
create excessive pressure on managers to focus
more on routine tasks rather than innovation
activities. For another thing, both retail investor
attention (Ding and Hou, 2015) and social media
usage (Blankespoor, Miller and White, 2014; Far-
rell et al., 2022) improve stock liquidity. And an
increase in liquidity could lead to a drop in future
innovation (Fang, Tian and Tice, 2014).
Measuring retail investor voice with the number
of innovation-related postings on stock message
boards and measuring rm innovation perfor-
mance with the number of patents and citations in
the next 1, 2 and 3 years, we nd a positiverelation
between them. To mitigate the endogeneity, we
adopt a quasi-natural experiment relying on the
introduction of the mobile application (App) for
stock message boards on Guba.EastMoney.com
and document that the positive relation between
retail investors’ postings and corporate innovation
becomes stronger after the launch of the App
and the innovation performance of rms that
experience a larger increase in the number of
postings is better than others. Digging deeper,
we perform tests to examine whether individual
investor voice could encourage rm innovation by
reducing rms’ information asymmetry, improv-
ing corporate governance and increasing market
misvaluation, and nd evidence in favour of these
three channels.
Our paper makes several contributions to the
literature. First, our paper extends the literature
on individual investors. To date, this strand of
research focuses almost exclusively on individual
© 2022 British Academy of Management.
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your 3-day Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your 3-day Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your 3-day Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your 3-day Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your 3-day Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting