© Dhruv Aggarwal, Albert H. Choi and Yoon-Ho Alex Lee 2023. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.

This paper can be downloaded without charge from:


Can retail investors revolutionize corporate governance and make public companies more responsive to social concerns? The U.S. stock market offered an unusual experiment to test the impact of retail investors in 2021, when there was a dramatic influx of retail investors into the shareholder base of companies such as GameStop and AMC. The meme surge phenomenon elicited a variety of reactions from scholars and practitioners. While some worried that affected companies’ share prices were becoming disjointed from their financial fundamentals, others predicted that retail shareholders will reduce the power of large institutional investors and democratize corporate governance. This Article presents the first empirical analysis of the impact of retail investors on the governance of companies affected by the “meme stock surge.” The Article presents three principal findings. First, we show how the “meme stock” frenzy was affected by the introduction of the commission-free trading platform, such as Robinhood, in 2019. We show that the meme stock companies experienced higher abnormal stock returns when commission-free trading was widely introduced, and saw elevated trading volumes afterward. Second, we examine how the influx of retail shareholders has directly affected the governance outcomes at the meme stock companies. Notwithstanding the promise of a more active retail shareholder base, we show that meme stock companies have experienced a significant decrease in participation by their shareholders with respect to voting. Shareholder proposals under Rule 14a-8 have also been extremely limited, with most meme firms seeing no proposals brought after the rapid increase in retail ownership. Third, we examine whether the increase in retail shareholder base had any indirect effect on corporate governance and performance. While board gender diversity at these firms is broadly unchanged, their ESG scores have gotten worse subsequent to the meme surge. Examining meme firms’ use of corporate funds, we find decreases in research and development and capital expenditures after the meme surge. Collectively, our findings suggest that the influx of retail shareholders at these companies have not translated into more “democratic” governance regimes or reduced agency costs, even at firms the scholarly and popular commentary had highlighted as the cynosure of the retail investor storm.


Banking and Finance Law | Corporate Finance | Law | Law and Economics | Securities Law

Date of this Version