The Power of Retail Investor Voice: The Effect of Online Discussions on Corporate Innovation

Abstract This paper studies how the voice of retail investors influences corporate innovation. Examining the relation between postings on Internet stock message boards and firms’ innovation output, we find that individual investors’ online discussions can promote innovation. To establish causality, we use a quasi‐natural experiment based on the launch of the mobile application for stock message boards with the subsample analysis and the difference‐in‐differences analysis. Three economic mechanisms underlying our findings are identified: online discussions can improve firms’ transparency, corporate governance and market misvaluation. Our findings broaden the understanding of individual investors’ and social media's roles in corporate governance.