Does the online interaction between retail investors and firm management affect capital structure?

This paper examines whether and how online interactions between retail investors and firm management affect financial leverage. Using a sample of Chinese A-share listed companies from 2010 to 2021, we find that retail investors' interaction with management, measured by the number of posts and replies in online interactive investor platforms, significantly decreases firms' financial leverage by mitigating information asymmetry. Further analyses show that this negative relationship is stronger for firms with more opaque information environments measured by higher research and development intensity, greater asset intangibility, lower analyst coverage, and higher retail ownership. Our findings suggest that retail investors significantly impact firms' financial leverage decisions, and provide positive evidence for information disclosure reform in an emerging capital market.