Thy Neighbor's Vote: Peer Effects in Proxy Voting

Abstract

Institutional investors' proxy voting decisions are influenced by their neighbors. I identify peer effects in proxy voting using close-call votes on shareholder-sponsored governance proposals at publicly traded financial institutions (focal institutions). I first show that the passage of a close vote at a focal institution increases the likelihood that the institution votes against management. Using a triple-difference approach, I find that the passage increases the likelihood that the neighboring institutions vote against management in stocks that are heavily held by the focal institution. These results suggest that peer influence is an important determinant of proxy voting behavior.

Keywords: Peer effects, Proxy voting, Institutional investors, Geography, Corporate governance

JEL Classification: G23, G32, G34