Information Intermediary or De Facto Standard Setter? Field Evidence on the Indirect and Direct Influence of Proxy Advisors

Posted: 6 Oct 2019

See all articles by Christie Hayne

Christie Hayne

University of Illinois at Urbana-Champaign

Marshall D. Vance

Virginia Tech

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2019

Abstract

We examine whether proxy advisory firms (PAs) serve primarily an information intermediary role by providing research and voting recommendations to shareholders, or directly influence executive compensation by exerting pressure on firms to adopt preferred pay practices. Through a field study, we find that PAs are perceived as both information intermediaries and agenda setters and that these roles provide leverage to enable PAs to exercise significant influence over executive pay practices. Boards feel, and sometimes yield to, pressure to conform to PA “best” practices despite their own preferred compensation philosophies, even in the absence of overt PA scrutiny or negative shareholder votes. We also find that PAs are susceptible to conflicts of interest and generally use a “one‐size‐fits‐all” approach to voting recommendations. Overall, however, PAs are viewed as improving compensation practices by increasing transparency and accountability and fostering dialogue between firms and their shareholders.

Keywords: executive compensation; corporate governance; proxy advisors; field study

JEL Classification: G230; G340; M410; M520

Suggested Citation

Hayne, Christie and Vance, Marshall D., Information Intermediary or De Facto Standard Setter? Field Evidence on the Indirect and Direct Influence of Proxy Advisors (September 1, 2019). Journal of Accounting Research, Vol. 57, No. 4, 2019, Available at SSRN: https://ssrn.com/abstract=3463836

Christie Hayne (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
540-300-4577 (Phone)

Marshall D. Vance

Virginia Tech ( email )

Blacksburg, VA 24061
United States

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