There’s more information than ever for investors, so how does the public use it?
Reena Aggarwal, Robert E. McDonough professor of finance and director at the McDonough’s Psaros Center for Financial Markets and Policy at Georgetown University, examines this.
Professor Aggarwal is a globally renowned expert in the field of finance. She specializes in financial markets and regulation, market microstructure, capital raising, IPOs, ETFs, short term funding markets, corporate governance, institutional investors, and digital assets. She has had tremendous impact at the intersection of financial markets and policy globally having advised several countries. Outside of teaching, she has been a FINRA Academic Fellow, an Academic Fellow at the U.S. SEC, and a Visiting Research Scholar at the IMF, World Economic Forum Global Agenda Council on the Future of Financing and Capital, Fulbright Scholar to Brazil, Distinguished Scholar at the Reserve Bank of India’s CAFRAL, and was awarded the Pembroke Visiting Professorship in International Finance at the University of Cambridge.
Public Sentiment and Investing
Public sentiment regarding corporate practices has become increasingly pronounced, particularly with the rise of social media and the democratization of information. This heightened public engagement encompasses a variety of issues including, for example, a company’s financial performance, products, environmental policies, and treatment of employees. Traditional media coverage and social media interactions serve as platforms for capturing public sentiment. Public sentiment can not only influence a corporation’s management and its board of directors, but it also affects shareholders, including large institutional investors such as mutual funds, pension funds, and asset managers. Institutional investors typically monitor public sentiment alongside conducting other research to inform their investment decisions.
Shareholders can voice their dissent by submitting shareholder proposals that get voted on at a firm’s annual shareholder meetings. Employing a novel approach with unique data on public sentiment and a new metric on shareholder concerns, we find an association between shareholder actions and public sentiment about a firm. The number of shareholder proposals effectively captures investor dissatisfaction. We find that negative public sentiment about financial, and other issues such as governance and social issues is associated with more shareholder proposals showing investor unhappiness. Further, a larger number of shareholder proposals appears to result in higher turnover for CEOs and directors.
Our insights have significant implications for corporate leaders and investors alike. For management, the message is clear: ignoring public opinion can lead to increased shareholder activism and leadership turnover. For investors, our findings highlight the effectiveness of voting to push for meaningful corporate change.
In today’s world, companies can no longer operate behind closed doors, shielded from public scrutiny. Shareholders, armed with public sentiment data, are increasingly willing to hold management accountable. This new reality underscores the importance of transparency and responsiveness in maintaining investor trust and long-term value creation.
Read More:
[SSRN] – Public Sentiment Decomposition and Shareholder Actions
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