Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading

We examine the effects of the sudden abolition of trading commissions by major brokerages in 2019 on corporate governance. Firms with greater retail ownership experienced greater positive abnormal returns around the abolition of commissions. Firms with positive abnormal returns in response to the abolition of commissions subsequently saw a decrease in institutional ownership, a decrease in shareholder voting, and a decrease in corporate governance scores. These firms also reduced the percentage of shares needed for a quorum at shareholder meetings. Our results show that entry costs influence retail ownership and influence on corporate governance.

Keywords: Corporate Governance, ESG, Financial Technology, Retail Investors

JEL Classification: G11, G14, G24, G41, K22

Suggested Citation: Suggested Citation

Aggarwal, Dhruv and Choi, Albert H. and Lee, Yoon-Ho Alex, Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading (August 29, 2024). Northwestern Law & Econ Research Paper No. 24-01, Northwestern Public Law Research Paper No. 24-01, European Corporate Governance Institute – Finance Working Paper No. 957/2024, U of Michigan Law & Econ Research Paper No. 24-013, Available at SSRN: https://ssrn.com/abstract=4708496 or http://dx.doi.org/10.2139/ssrn.4708496