Abstract
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.
Disciplines
Banking and Finance Law | Corporate Finance | Law | Law and Economics | Securities Law
Date of this Version
2-2024
Working Paper Citation
Aggarwal, Dhruv; Choi, Albert H.; and Lee, Yoon-Ho Alex, "Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading" (2024). Law & Economics Working Papers. 267.
https://repository.law.umich.edu/law_econ_current/267
Included in
Banking and Finance Law Commons, Corporate Finance Commons, Law and Economics Commons, Securities Law Commons