Dhruv Aggarwal is an Assistant Professor of Law at Northwestern Pritzker School of Law, Albert H. Choi is the Paul G. Kauper Professor of Law at the University of Michigan, and Yoon-Ho Alex Lee is Professor of Law and Director of the Center on Law, Business, and Economics at Northwestern Pritzker School of Law. This post is based on their recent paper. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita; How Much Do Investors Care About Social Responsibility? (discussed on the Forum here) by Scott Hirst, Kobi Kastiel, and Tamar Kricheli-Katz; and Does Enlightened Shareholder Value Add Value? (discussed on the Forum here) by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita.
What role do retail shareholders play in corporate governance? Finance and legal scholars have long debated and analyzed the impact of changes in shareholder base (from retail to institutional or vice versa) on corporate governance and performance. In a recent paper, we attempt to shed light on this issue by using the sudden abolition of trading commissions by major brokerages in 2019 as a potential natural experiment. The market-wide introduction of zero-commission trading by major brokerages substantially reduced retail investors’ cost of entering the stock market and can be linked to an increase in retail ownership at certain firms. By examining the effect of zero-commission trading and subsequent changes at firms, we attempt to uncover the impact of having more retail shareholders on firm ownership and governance.
