The Power of Crowds: Can Minority Shareholder Activism Promote Management Forecast Accuracy

Abstract

In a setting where minority shareholder becomes into a higher stakeholder class with much salience, we study whether their voices promote management forecast accuracy. We test our framework by observing the publicly listed firms in Chinese Shenzhen Stock Exchange between 2010 and 2018, and find that small investors, when empowered with the availability to interact with firm management directly on the online social media platform, could improve management forecast accuracy by requesting information from firms. Furthermore, the positive impact of minority shareholder activism on forecast accuracy is stronger when focal firm is involved with more negative media coverage and when managers attach more importance to minority shareholder activism. This study not only contributes to the literature on shareholder activism, stakeholder salience and management earnings forecast, but also have valuable implications for protecting minority shareholders via the powerful voice of ordinary individuals in the information era.