Retail investors matter: The value of corporate interactions

Abstract

While the importance of corporate interactions with large or institutional investors has attracted much research attention, the value of such interactions with retail investors remains largely unexplored. In this study, we investigate the impact of corporate interactions with retail investors on the cost of equity capital, using a comprehensive dataset of dialogues extracted from online corporate interactive communication platforms launched by two major Chinese stock exchanges in the 2010 s. We find that firms that actively engage with retail investors have significantly lower costs of equity capital, and this effect is particularly pronounced when these investors hold a larger proportion of ownership. Our findings suggest that the interactions between firms and retail investors lead to a reduction in the cost of equity capital, primarily by mitigating the difficulties these investors face in processing information and enhancing their confidence in the firm.