The real effects of proxy advisors on the firm

Abstract

This paper examines the influence of proxy advisors (PA) on firm voting outcomes, policies, and value. We measure PA influence with shareholders' historical propensity to follow PA recommendations. PA influence increases the impact of PA recommendations on proxy voting outcomes and firm policies. When shareholders have private incentives to engage in costly research in the absence of a proxy advisor, PA influence neither harms nor benefits shareholder value. However, at firms with dispersed shareholders PA influence can increase value. Our findings are consistent with theories of voting in which proxy advisors compete with private information acquisition efforts by large shareholders.

Proxy Advisory Firms: The Economics of Selling Information to Voters

“…In such firms, the negative crowding out effect does not arise, while the positive effect does—the advisor's presence provides a relatively cheap way for shareholders to become informed. Thus, the negative effect of proxy advisors is more likely to arise in firms with more concentrated ownership, consistent with the findings of Calluzzo and Dudley ().…”

“…Calluzzo and Dudley () test the above prediction following a different approach, namely, by looking at cross‐sectional variation in the influence of proxy advisors. They develop a firm‐level measure of ISS influence based on the propensity of the firm's shareholders to vote with ISS.…”

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

“…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.…”

Voting in Shareholders Meetings

“…Another implication of Proposition 1 is that 1S1V becomes more e¢ cient when we multiply the shares that all shareholders hold (i.e., when we split stocks). 24 In particular, V 1S1V (k d) weakly dominates V 1S1V (d) for any k 2 N. This result shows that, through their e¤ect on the ballot space of shareholders, stock splits indeed increase shareholders'ability to reveal their information about the quality of management proposals through voting.…”