The Impact of Finfluencers and Social Media on Corporate Law – Notes from South Korea and India

The story of the rise of finfluencers is tangled in the story of the rise of retail investors, social media, the Covid-19 pandemic, and investing apps that made it easy and fun for laypersons to make and manage investments. The GameStop episode brought all this into sharp focus. At the epicentre of the GameStop movement was a finfluencer, Keith Gill, who went by the name of Roaring Kitty. Gill influenced people’s decisions to buy shares in GameStop even when the price of a share had gone from $4 to $80 and then to not sell the shares even when they could have made a profit by selling. The fact that retail investors continue to matter even today is reflected in the recent proxy contest at Disney where, amongst other things, management got George Lucas, the creator of the Star Wars franchise to publicly support the company. George Lucas is an example of a celebrity finfluencer in this context. 

In South Korea, retail investing had begun even before the pandemic, although Gamestop definitely inspired some copycat behaviour in the country. A thread called kstreetbets was formed on Never Café, Korea’s equivalent of Reddit. Korean retail investors have also felt short-changed by short sellers who were mainly big institutions at the time. However, by 2021, retail investors accounted for about 60% of the daily stock market turnover, and so in theory, they could have both market and political heft if their trading is coordinated. Yet, because of concerns about violating regulations, the retail investors have focused on lobbying government to change the rules rather than working against the short sellers through coordinated trading. These efforts have been partially successful with the Korean government temporarily imposing a ban on short-selling, and then extending it up to 2024. 

Finfluencers as popular as Gill, if not more, have also triggered GameStop-esque episodes in South Korea. In 2023, retail investors caused the shares of EcoPro and its subsidiary, EcoPro BM (which is a battery company), to go up nine times, based on recommendations and encouragement of local finfluencers like Park Soon-hyuk (affectionately called ‘Battery Ajeossi’). Just like in the GameStop episode, according to experts, this stock price too did not reflect the fundamentals of that company. While nostalgia for GameStop coupled with other pandemic related factors might have contributed to retail investors rallying for GameStop, in this case, retail investors in South Korea seem to have made a calculated decision. They were betting that ‘South Korean battery makers and material producers will benefit from a booming market in electric vehicles and US president Joe Biden’s landmark programme of subsidies for clean energy’, which has restricted Chinese components in green technologies that were able to qualify for carbon credits. Retail investors have also begun to actively participate as shareholders of the companies they hold shares in, and a domestic activist fund, Align Partners, seems to be actively engaging with retail investors for its campaigns. The retail investor cohort in South Korea also seems to be mature enough to assess information and vote based on issues at stake. 

In India, the story is more about financial inclusion, with finfluencers reaching different slices of the population by offering content in local languages. Since they are targeting first time investors, the content often focuses on basics like ‘how to buy your first share’. An incident worth highlighting is that of Hindenburg Research, a firm that engages in short selling, publishing a report about the Adani group of companies, stating that the group’s stocks were overvalued, and accusing Gautam Adani, founder of the Adani group, of accounting fraud and stock market manipulation. Since Adani is seen to be close to the Indian prime minister, the issue became a politically charged debate. The fact that many finfluencers supported the report should caution us about finfluencers diluting their content in favour of entering politically charged debates to increase their online followers and/ or viewership. 

In terms of regulatory approaches, the market regulator in South Korea is actively engaging with retail investors and finfluencers in determining rules about short selling. While the market regulator in India initially sought to ban finfluencers, they are currently undertaking a consultation process to determine the best way forward. 

Finfluencers bringing populism into the market and finfluencers helping increase financial inclusion and eventually ensuring active engagement of retail investors on governance issues are two sides of the same coin. In determining risks and benefits of finfluencers, regulators across jurisdictions would do well to consider the developments in South Korea and India. 

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By Akshaya Kamalnath (Australian National University)

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