Empirical Evidence on the Role of Proxy Advisors in European Capital Markets

Hitz, Joerg Markus; Lehmann, Nico

doi:10.1080/09638180.2017.1305282

Cited by 23 publications

(26 citation statements)

References 19 publications

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“…The economic roles of vendors of governance ratings versus proxy voting services differ. The former provide detailed information on the firm's governance structure (Daines, Gow, and Larcker [], Hitz and Lehmann []), while the latter facilitate investor votes at annual meetings (Ertimur, Ferri, and Oesch [], Calluzzo and Dudley [], Hitz and Lehmann []). Governance rating services end up being an input to proxy advisory, rather than a comparable service.…”

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confidence: 99%

Do Corporate Governance Analysts Matter? Evidence from the Expansion of Governance Analyst Coverage

Lehmann

2019

J of Accounting Research

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This paper examines the economic consequences of the initiation of governance analyst coverage. Governance analysts process, enhance, and * University of Goettingen.Accepted by Christian Leuz. This paper is based on one part of my dissertation at the Georg-August University of Goettingen. I am deeply indebted to Jörg-Markus Hitz (dissertation chair) for his continuous support and excellent guidance. I am very grateful to the editor and an anonymous referee for their excellent guidance and constructive suggestions throughout the whole review process. The paper has further benefited from the insights of Ulf Brüggemann, Hans B. Christensen, Rafael Copat (discussant), N. LEHMANN disseminate governance-related information to capital market participants via, for example, governance reports and ratings. Using an exogenous shock in the United Kingdom, I find that an increase in governance analyst coverage results in increased governance quality, improved liquidity, increased financial analyst following, and improved investor breadth. These findings are consistent with governance analysts creating value for firms via monitoring, information dissemination/production, and investor recognition. JEL codes: G15; G23; G24; G30; G34; M40; M41

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confidence: 99%

Do Corporate Governance Analysts Matter? Evidence from the Expansion of Governance Analyst Coverage

Lehmann

2019

J of Accounting Research

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“…Our findings are relevant to the ongoing regulatory debate on proxy advisory firms within Congress (Corporate Governance Reform and Transparency Act of 2017), the SEC (Roundtable on the Proxy Process, 2018), and European Union (EU Shareholder Rights Directive). This debate has focused exclusively on proxy recommendations, which have been shown to determine prices and voting outcomes (e.g., Alexander et al, 2010;Ertimur et al, 2013;Hitz and Lehmann, 2018). By showing that proxy advisory firms also impact prices via rating announcements, and thus the dissemination of governance information, we demonstrate a greater influence and importance than previously assumed.…”

Section: Introductionmentioning

confidence: 51%

“…We explore, and refute, another explanation for the negative returns related to potential real effects of downgrades. Downgrades may increase the likelihood that ISS will recommend a proxy advisory vote against management, which adversely affect voting outcomes (Iliev and Lowry, 2015;Malenko and Shen, 2016;McCahery et al, 2016) and stock prices (Ertimur et al, 2013;Hitz and Lehmann, 2018). However, we find that the correlation between downgrades and subsequent proxy recommendations against management is small (as do DGL), and that the negative returns are not driven by downgrades that occur closer to the proxy season.…”

Section: Introductionmentioning

confidence: 53%

Do Corporate Governance Ratings Change Investor Expectations? Evidence from Announcements by Institutional Shareholder Services*

Guest

Nerino

2019

Review of Finance

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This paper examines empirically the announcement effect of commercial corporate governance ratings on share returns. Rating downgrades by Institutional Shareholder Services (ISS) are associated with negative returns of –1.14% over a 3-day announcement window. The returns are highly correlated with the proprietary analysis of ISS and are decreasing in agency costs, consistent with ratings providing independent information on underlying corporate governance quality. We thus show that the influence and impact of ISS extends beyond proxy recommendations and subsequent voting outcomes. Our findings contrast with the insignificant price impact of Daines, Gow, and Larcker (2010), whose analysis we replicate and successfully reconcile to ours by pooling upgrades and downgrades together.

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“…However, it is unknown whether a guideline published by a private advisory firm gives rise to managers' opportunistic reporting behaviours. Specifically, while ISS is only an advisory firm to shareholders and investors, its influence has attracted significant attention and concern from both financial regulators and academics (Ertimur et al 2018;Hitz and Lehmann 2018).…”

Section: Use Uniquementioning

confidence: 99%

“…It finds that managers manipulate earnings to report profit, increase earnings, and meet analysts and management's earnings forecasts (Healy and Wahlen 1999;Graham et al 2005;Dechow et al 2010). Moreover, given the growing interests of companies, market participants, and regulators, scholars have devoted increasing attention to understanding the influence of proxy advisors on firms' corporate governance, such as director elections, voting outcomes, and executive compensation (Ertimur et al 2018;Hitz and Lehmann 2018;Hayne and Vance 2019). However, we have even less evidence on whether a guideline issued by a proxy advisory firm affects firms' reporting behaviours.…”

Section: Introductionmentioning

confidence: 99%

ISS’s Proxy Voting Guidelines and ROE Management

Ishida

Kochiyama

2020

SSRN Journal

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We examine the impact of the proxy voting guidelines of the Institutional Shareholder Services (ISS) on managers' opportunistic reporting behaviours. In January 2015, the ISS introduced a new advisory guideline based on firms' return on equity (ROE), and started to recommend that shareholders should vote against the proposed director election for firms whose ROE is lower than 5%. Focusing on this benchmark, we find that managers are more likely to achieve this threshold since the publication of the guideline and, in particular, they do so by accrual management and increased dividends. Moreover, firms with higher institutional ownership are more likely to beat the threshold. This paper thus contributes to the literature by providing new evidence that earnings management can be motivated by a unique soft law and detects managers' discretions in the context of ROE.

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Empirical Evidence on the Role of Proxy Advisors in European Capital Markets

Cited by 23 publications

References 19 publications

Do Corporate Governance Analysts Matter? Evidence from the Expansion of Governance Analyst Coverage

Do Corporate Governance Analysts Matter? Evidence from the Expansion of Governance Analyst Coverage

Do Corporate Governance Ratings Change Investor Expectations? Evidence from Announcements by Institutional Shareholder Services*

ISS’s Proxy Voting Guidelines and ROE Management

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