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Do Retail Investors Matter?

We study the role of retail investors in information discovery and dissemination. Using a unique textual dataset of mandatory online “earnings communication conferences” from China, we find that stock market reaction and future firm performance are positively associated with the tone of questions asked by retail investors in the conferences. When managers dodge the questions from retail investors, as indicated by the high degree of content dissimilarity between investors’ questions and mangers’ answers, the market reacts less favorably and future earnings deteriorates. The effects are stronger for firms with less analyst coverage. Overall, the evidence suggests that retail investors could contribute to the information discovery process by asking value-relevant questions.