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http://ssrn.com/abstract=1694535
 
 

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The Power of Proxy Advisors: Myth or Reality?


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


Emory Law Journal, Vol. 59, p. 869, 2010
University of Penn, Institute for Law & Economics Research Paper No. 10-24

Abstract:     
Recent regulatory changes increasing shareholder voting authority have focused attention on the role of proxy advisors. In particular, greater shareholder empowerment raises the question of how much proxy advisors influence voting outcomes. This Article analyzes the significance of voting recommendations issued by four proxy advisory firms in connection with uncontested director elections. We find, consistent with press reports, that Institutional Shareholder Services (ISS) is the most powerful proxy advisor and that, of the others, only Glass, Lewis & Co. seems to have a meaningful impact on shareholder voting.

This Article also attempts to measure the impact of voting recommendations on voting outcomes. Unlike prior literature, it distinguishes correlation from causality by examining both the recommendation itself and the underlying factors that may influence a shareholder’s vote. Using several different tests, we conclude that popular accounts substantially overstate the influence of ISS. Our findings reveal that the impact of an ISS recommendation is reduced greatly once company- and firm-specific factors important to investors are taken into consideration. Overall, we estimate that an ISS recommendation shifts 6%–10% of shareholder votes. We also determine that a major component of ISS’s influence stems from its role as an information agent, aggregating factors that its subscribers consider important.

Number of Pages in PDF File: 51

Keywords: Corporations, securities regulation, proxy votes by shareholders, empirical findings, influence on proxy voting

JEL Classification: G39, K22

Accepted Paper Series


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Date posted: October 20, 2010  

Suggested Citation

Choi, Stephen J. and Fisch, Jill E. and Kahan, Marcel, The Power of Proxy Advisors: Myth or Reality?. Emory Law Journal, Vol. 59, p. 869, 2010; University of Penn, Institute for Law & Economics Research Paper No. 10-24. Available at SSRN: http://ssrn.com/abstract=1694535

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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