Proxy Advisory Firms and Corporate Shareholder Engagement
76 Pages Posted: 2 Jul 2021
Date Written: June 22, 2021
We examine the influence of proxy advisors on firms’ shareholder engagement behavior. Our analyses exploit a quasi-natural experiment using Say-On-Pay voting outcomes near a threshold that triggers a review of engagement activities by Institutional Shareholder Services (ISS). Firms receiving ISS treatment exhibit a swift and substantive increase in engagement, especially those with weaker ex-ante governance. The elevated engagement persists beyond the period of ISS scrutiny. Treated firms alter elements of compensation and pay transparency that align with shareholder feedback, and enjoy ex-post economic benefits. Our findings indicate a disciplinary spillover effect of ISS through enhanced and enduring firm-shareholder interactions.
Keywords: Proxy advisors, ISS, shareholder engagement, executive compensation, CD&A disclosures
JEL Classification: D72, D82, G34, G38, M12
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