The Real Effects of Proxy Advisors on the Firm

48 Pages Posted: 19 Jun 2015 Last revised: 25 Jul 2017

See all articles by Paul Calluzzo

Paul Calluzzo

Queen's University - Smith School of Business

Evan Dudley

Queen's University - Smith School of Business

Date Written: July 24, 2017

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. However, we find a more nuanced effect with respect to firm value. When shareholders have private incentives to engage in costly research without a proxy advisor, PA influence neither harms nor benefits shareholder value. At firms with dispersed shareholders with little incentives to vote informatively in the absence of a proxy advisor, 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.

Keywords: Proxy advisor, corporate governance, institutional voting, Institutional Shareholder Services

JEL Classification: G32, G34

Suggested Citation

Calluzzo, Paul and Dudley, Evan, The Real Effects of Proxy Advisors on the Firm (July 24, 2017). Available at SSRN: https://ssrn.com/abstract=2619698 or http://dx.doi.org/10.2139/ssrn.2619698

Paul Calluzzo

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Evan Dudley (Contact Author)

Queen's University - Smith School of Business ( email )

Goodes Hall
Kingston, Ontario K7L 3N6
Canada

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