Retail Shareholders and the Efficacy of Proxy Voting: Evidence from Auditor Ratification

Review of Accounting Studies, Forthcoming

59 Pages Posted: 8 Feb 2018 Last revised: 11 Aug 2022

See all articles by Cory A. Cassell

Cory A. Cassell

University of Arkansas

Tyler J. Kleppe

University of Kentucky - Von Allmen School of Accountancy

Jonathan E. Shipman

University of Arkansas

Date Written: August 8, 2022

Abstract

We investigate the influence and implications of retail shareholder participation in the proxy voting process. Using the shareholder vote on auditor ratification—a setting which facilitates the identification of an informed vote—we find that, on average, shareholder votes against auditor ratification are not associated with audit failures but are strongly associated with investment performance. We next consider how these relations vary with the composition of a company’s voting base and find consistent evidence that the auditor ratification vote becomes less informed (i.e., associated with factors that do not reflect auditor performance) as retail ownership increases. In subsequent tests, we find that the probability of auditor dismissal is increasing in the proportion of votes against auditor ratification, and that this relation does not vary significantly with the proportion of shares held by retail investors. Collectively, our results suggest that some auditors are dismissed for factors not directly related to auditor performance.

Keywords: proxy voting; retail shareholders; corporate governance; auditor ratification

JEL Classification: G34; M41; M42; M48

Suggested Citation

Cassell, Cory A. and Kleppe, Tyler J. and Shipman, Jonathan E., Retail Shareholders and the Efficacy of Proxy Voting: Evidence from Auditor Ratification (August 8, 2022). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3113807 or http://dx.doi.org/10.2139/ssrn.3113807

Cory A. Cassell (Contact Author)

University of Arkansas ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Tyler J. Kleppe

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

Jonathan E. Shipman

University of Arkansas ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

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