Retail shareholder activism and corporate innovation: evidence from investor interaction platforms in China

Using the number of questions posted by shareholders on investor interaction platforms of Shenzhen Stock Exchange and Shanghai Stock Exchange as our proxy for retail shareholder activism, we examine the effect of retail shareholder activism on corporate innovation. We find that retail shareholder activism is positively associated with corporate innovation. This association is robust to a series of checks, including using alternative measures of dependent and independent variables, instrumental variable estimation, propensity score matching with a difference-in-difference method and adding possible omitted variables. Further analyses show that the impact of retail shareholder activism on corporate innovation is more pronounced in firms with a better information environment, firms whose controlling shareholder is the state, firms located in a worse market environment and firms with higher feedback quality. Moreover, we find that retail shareholder activism contributes to higher corporate innovation by prompting top management to increase investments in R&D. Besides, the analysis also excludes the catering hypothesis. Generally, our findings provide evidence of the governance effect of retail shareholder activism.