Meme Corporate Governance

33 Pages Posted: 7 Feb 2023 Last revised: 29 Jan 2024

Date Written: January 26, 2024

Abstract

Can retail investors revolutionize corporate governance and make public companies more responsive to social concerns? Starting in 2021, there was a dramatic influx of retail investors into the shareholder base of “meme” companies such as GameStop and AMC. Motivated by the unprecedented coordinated trading patterns among retail investors, scholars and practitioners predicted that the influx of retail investors would reduce the power of large institutional investors and democratize corporate governance. These predictions were driven by three factors: generational, millennial and Gen Z investors being assumed to challenge corporate management; societal, with growing discontentment with slow progress on issues such as sustainability and boardroom diversity; and technological, with the advent of easily accessible and user-friendly mobile apps allowing investors to directly intervene in corporate governance. While plausible, these predictions have so far not been tested. This Article provides the first empirical analysis of the impact of retail investors on corporate governance. We provide new quantitative evidence regarding the origins of meme investing and conclude that—despite their coordinated behavior in the trading markets—meme investors have not democratized corporate governance or advanced social issues. The Article presents three principal findings. First, we show how the “meme stock” frenzy was affected by the abolition of trading commissions by major online brokerages in 2019. Meme stock companies experienced positive abnormal stock returns when commission-free trading was widely introduced and saw elevated trading volumes afterward. Second, we find that despite the promise of a more active retail shareholder base, meme stock firms experienced a significant decrease in shareholder voting. Shareholder proposals have also been very limited, with most meme firms seeing no proposals after the rapid rise in retail ownership. Third, we find no improvement in meme firms’ corporate governance and social responsibility, as represented by director independence, board gender diversity, ESG scores, and capital and R&D expenditures. Collectively, our findings suggest that the influx of retail shareholders has not translated into more “democratic” governance regimes or encouraged shareholder participation in corporate governance at firms most affected by the meme investor storm.

Keywords: Meme Stock, Retail Investors, Corporate Governance, Shareholder Voting, ESG

Suggested Citation

Aggarwal, Dhruv and Choi, Albert H. and Lee, Yoon-Ho Alex, Meme Corporate Governance (January 26, 2024). U of Michigan Law & Econ Research Paper 23-009, European Corporate Governance Institute - Law Working Paper No. 681/2023, Northwestern Public Law Research Paper No. 23-17, Southern California Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4347885 or http://dx.doi.org/10.2139/ssrn.4347885

Dhruv Aggarwal

Northwestern Pritzker School of Law ( email )

750 N. Lake Shore Drive
Chicago, IL 60611
United States

Albert H. Choi (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

HOME PAGE: http://www.law.umich.edu/FacultyBio/Pages/FacultyBio.aspx?FacID=alchoi

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://ecgi.global/users/albert-h-choi

Yoon-Ho Alex Lee

Northwestern Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
(312) 503-2565 (Phone)

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