Meme Corporate Governance

Meme Corporate Governance

Dhruv Aggarwal, Albert H. Choi, Yoon-Ho Alex Lee

Series number :

Serial Number: 
681/2023

Date posted :

February 19 2023

Last revised :

November 29 2023
SSRN Share

Keywords

  • Meme Stock • 
  • retail investors • 
  • Corporate governance • 
  • Shareholder voting • 
  • ESG

Can retail investors revolutionize corporate governance and make public companies more responsive to social concerns? Starting in 2021, there was a dramatic influx of retail investors into the shareholder base of “meme” companies such as GameStop and AMC.

Motivated by the unprecedented coordinated trading patterns among retail investors, scholars and practitioners predicted that the influx of retail investors would reduce the power of large institutional investors and democratize corporate governance. These predictions were driven by three factors: generational, millennial and Gen Z investors being assumed to challenge corporate management; societal, with growing discontentment with slow progress on issues such as sustainability and boardroom diversity; and technological, with the advent of easily accessible and user-friendly mobile apps allowing investors to directly intervene in corporate governance. While plausible, these predictions have so far not been tested. This Article provides the first empirical analysis of the impact of retail investors on corporate governance. We provide new quantitative evidence regarding the origins of meme investing and conclude that—despite their coordinated behavior in the trading markets—meme investors have not democratized corporate governance or advanced social issues. The Article presents three principal findings. First, we show how the “meme stock” frenzy was affected by the abolition of trading commissions by major online brokerages in 2019. Meme stock companies experienced positive abnormal stock returns when commission-free trading was widely introduced and saw elevated trading volumes afterward. Second, we find that despite the promise of a more active retail shareholder base, meme stock firms experienced a significant decrease in shareholder voting. Shareholder proposals have also been very limited, with most meme firms seeing no proposals after the rapid rise in retail ownership. Third, we find no improvement in meme firms’ corporate governance and social responsibility, as represented by director independence, board gender diversity, ESG scores, and capital and R&D expenditures. Collectively, our findings suggest that the influx of retail shareholders has not translated into more “democratic” governance regimes or encouraged shareholder participation in corporate governance at firms most affected by the meme investor storm.

 

 

Published in

Published in: 
Description: 
Southern California Law Review, Forthcoming

Authors

Real name:
Dhruv Aggarwal
Real name:
Yoon-Ho Alex Lee