Retail investor activism and corporate environmental investments: evidence from green attention

Abstract

PurposeThe purpose of this study is to examine the role of retail investors’ green attention in promoting corporate environmental investments (EIs) using a communication sample on “Hudongyi” from 2011 to 2022.Design/methodology/approachIn this paper, Python is used to capture data and text analysis techniques to obtain green attention information. In the word-matching process, words are matched in the target document one by one based on the preset dictionary and vocabulary rules. In addition to employing fixed effects, this study also incorporates instrumental variables using two-stage least squares (2SLS) estimation and applies the Heckman two-step method to verify the regression results.FindingsFirst, this paper empirically examines the positive influence of retail investors’ green attention on EIs. Second, the findings show that retail investors’ green attention promotes EIs through decreasing principal-agent costs and principal-principal costs. Third, the results show that retail investor’s supervision effect is strengthened under the following three circumstances: executives with stronger green conception, corporations with less information asymmetry and areas with higher level of investor protection.Practical implicationsOur findings broaden the scope of prior research by exploring the impact of retail investor activism on nonfinancial outcomes, contributing to understanding the “black box” of how investor attention fosters EIs. Moreover, by leveraging the power of technology, retail investors have evolved from being the “silent majority” to being actively engaged. The internet has empowered retail investors by providing them with access to information and enabling them to exercise “voice” rights by appealing companies to engage in pro-environmental activities. Our study can provide useful suggestions for the green development of listed companies in China, as well as in other emerging countries.Originality/valueUnlike other studies that focus on the deterrent effect and corporate financial outcomes of retail investors, we focus on the supervisory effect of retail investors and verify its role in driving EIs. This fills the knowledge gap in prior studies and contributes new insights to explain EIs and extends the understanding of retail investor activism.