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http://ssrn.com/abstract=1127282
 
 

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Director Elections and the Influence of Proxy Advisors


Stephen J. Choi


New York University School of Law

Jill E. Fisch


Institute for Law and Economics, University of Pennsylvania Law School

Marcel Kahan


New York University School of Law; European Corporate Governance Institute

May 2008

NYU Law and Economics Research Paper No. 08-22
3rd Annual Conference on Empirical Legal Studies Papers
Fordham Law Legal Studies Research Paper No. 1127282

Abstract:     
Using a dataset of proxy recommendations and voting results for uncontested director elections from 2005 and 2006 at S&P 1500 companies, we examine how advisors make their recommendations and how these recommendations and other factors affect the shareholder vote. Of the four firms we study, Institutional Shareholder Services (ISS), Proxy Governance, Glass Lewis, and Egan Jones, ISS is widely regarded as the most influential and its recommendation is claimed to sway 20-30% of the vote. We find that the four proxy advisory firms differ systematically from each other both in their willingness to issue a withhold recommendation and in the factors that affect their recommendation.

We further find that all the proxy advisors, but particularly ISS, base their recommendations largely on factors that shareholders take into account (independent of the recommendation) in casting their vote. Once these factors are controlled for, overall voting outcomes are substantially similar whether or not a proxy advisor has issued a recommendation. Our analysis demonstrates that the reported influence of ISS is substantially overstated. Our evidence is consistent with the view that proxy advisors act primarily as agents or intermediaries which aggregate information that investors find important in determining how to vote in director elections rather than as independent power centers.

Number of Pages in PDF File: 77

Keywords: proxy advisors, corporate governance, shareholder voting, ISS, institutional investors

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Date posted: May 2, 2008 ; Last revised: May 7, 2008

Suggested Citation

Choi, Stephen J. and Fisch, Jill E. and Kahan, Marcel, Director Elections and the Influence of Proxy Advisors (May 2008). NYU Law and Economics Research Paper No. 08-22; 3rd Annual Conference on Empirical Legal Studies Papers; Fordham Law Legal Studies Research Paper No. 1127282. Available at SSRN: http://ssrn.com/abstract=1127282 or http://dx.doi.org/10.2139/ssrn.1127282

Contact Information

Stephen J. Choi
New York University School of Law ( email )
40 Washington Square South
New York, NY 10012-1099
United States
Jill E. Fisch (Contact Author)
Institute for Law and Economics, University of Pennsylvania Law School ( email )
3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-3454 (Phone)
215-573-2025 (Fax)
Marcel Kahan
New York University School of Law ( email )
40 Washington Square South
New York, NY 10012-1099
United States
212-998-6268 (Phone)
212-995-4341 (Fax)
European Corporate Governance Institute ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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