Public Sentiment Decomposition and Shareholder Actions
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, treatment of employees and corporate governance practices. Traditional media coverage and social media interactions serve […]
Reena Aggarwal is the Robert E. McDonough Professor of Finance and Director at Georgetown University. This post is based on a recent paper by Professor Aggarwal, Professor Hoa Briscoe-Tran, Professor Isil Erel, and Professor Laura T. Starks.
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, treatment of employees and corporate governance practices. Traditional media coverage and social media interactions serve as platforms for capturing public sentiment. The 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. Given their role as stewards of capital, institutional investors typically monitor public sentiment alongside conducting their own independent research to inform their investment decisions.
The question that arises is whether public opinion influences shareholders’ actions, which we capture through number of shareholder proposals and support rate for director elections. Alternatively, the public sentiment may be irrelevant to shareholders’ actions, as different stakeholders might simply follow their own financial and nonfinancial motives that do not necessarily overlap with the public sentiment. Therefore, understanding the effect of public sentiment on shareholder actions is important, especially with the ever-increasing push for democratization of information. The retailer Target is an example of a firm that received severe backlash in 2023 with customers boycotting its products and it had to immediately make changes to its product offerings. The firm had one shareholder proposal in both 2022 and 2023, but they subsequently had five in 2024.
