Do Answers to Retail Investor Questions Reduce Information Asymmetry among Investors? Evidence from Chinese Investor Interactive Platforms

47 Pages Posted: 22 Nov 2022

See all articles by Zhenhua Chen

Zhenhua Chen

Louisiana State University, Baton Rouge - Department of Accounting

William J. Mayew

Duke University - Fuqua School of Business

Wentao Ren

affiliation not provided to SSRN

Pengcheng Zhu

University of San Diego - School of Business Administration

Date Written: November 19, 2022

Abstract

Retail investors are rising in prominence but have historically been granted little direct access to question corporate management relative to professionals like sell-side analysts and institutional investors. Because retail investors are relatively less sophisticated and can require hand-holding, we examine whether information asymmetry among investors decreases when firms answer questions from the retail investor base. We exploit China’s investor interactive platforms (IIPs), which were designed to facilitate retail investor access to management. IIPs allow questions to be anonymously and publicly posted, but answers can only pertain to previously disclosed information and there is no explicit penalty for low-quality answers. We find that IIP answers reduce bid-ask spreads, with stronger answer effects when managers respond quickly, provide direct answers, and interact with IIP users who focus on the firm. These information asymmetry reduction benefits are substantially attenuated, and in some cases non-existent, for state-owned enterprises (SOEs), who have less incentive to publicly engage with retail investors. Finally, our findings reveal that on average the marginal effects of answers are smaller than for posted questions, suggesting that while firms benefit from answering questions to lower investor integration costs, IIP activity that lowers awareness and acquisition costs is also important.

Keywords: Quasi-Mandatory Disclosure, Retail Investors, Information Asymmetry, Bid-Ask Spreads, Access to Management, Investor Interactive Platforms, Investor Processing Costs

Suggested Citation

Chen, Zhenhua and Mayew, William J. and Ren, Wentao and Zhu, Pengcheng, Do Answers to Retail Investor Questions Reduce Information Asymmetry among Investors? Evidence from Chinese Investor Interactive Platforms (November 19, 2022). Available at SSRN: https://ssrn.com/abstract=4281898 or http://dx.doi.org/10.2139/ssrn.4281898

Zhenhua Chen

Louisiana State University, Baton Rouge - Department of Accounting ( email )

E.J. Ourso College of Business Administration
2800 Business Education Complex
Baton Rouge, LA 70803
United States

William J. Mayew (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7781 (Phone)
919-660-7971 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty/alpha/mayew.htm

Wentao Ren

affiliation not provided to SSRN

Pengcheng Zhu

University of San Diego - School of Business Administration ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

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