Are retail investors really passive? Shareholder activism in the digital age

Academics traditionally view retail investors as rationally passive toward corporate proxy fights due to the higher cost of individual information gathering and their inability to coordinate collectively. In the wake of the digital age and social media, we re-examine retail investors’ attention and participation during the shareholder activism process. Using a sample from 2005 to 2016, we find that abnormal Google search activities (a proxy for retail investors’ attention in the literature) on firms that receive a shareholder proposal increase during the 3-week period leading up to the voting. This increase is more pronounced for less transparent firms. Our textual analyses of proxy statements also indicate that these abnormal Google search activities particularly increase for proposals with a more negative or controversial tone. In turn, this retail investors’ attention is associated with greater participation in the voting process, especially among proposals that resonate with shareholders’ preferences and interests (high salience activism). Finally, we show that greater participation during high salience activism is more prominent after E-proxy regulation became fully effective in 2009. By highlighting that retail investors are proactively engaged in “informed” voting during the shareholder activism process, our study further challenges the view that retail investors are narratively passive