Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading

Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading

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

Series number :

Serial Number: 
957/2024

Date posted :

February 09 2024

Last revised :

February 09 2024
SSRN Share

Keywords

  • Corporate governance • 
  • ESG • 
  • Financial Technology • 
  • retail investors

We examine the effects of the sudden abolition of trading commissions by major online brokerages in 2019, which lowered stock market entry costs for retail investors, on corporate governance. Firms already popular with retail investors experienced positive abnormal returns around the abolition of commissions.

Firms with positive abnormal returns in response to commission-free trading subsequently saw a decrease in institutional ownership, a decrease in shareholder voting, and a deterioration in environmental, social, and corporate governance (ESG) metrics. Finally, these firms were more likely to adopt bylaw amendments to reduce the percentage of shares needed for a quorum at shareholder meetings. Our results provide new insights into the effects of entry costs on investors and the role of retail investors in corporate governance.

Authors

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