The Real Effects of Proxy Advisors on the Firm
48 Pages Posted: 19 Jun 2015 Last revised: 25 Jul 2017
Date Written: July 24, 2017
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: Suggested Citation