Proxy Advisory Firms and Corporate Shareholder Engagement
80 Pages Posted: 2 Jul 2021 Last revised: 25 Jan 2023
Date Written: January 24, 2023
We study how Institutional Shareholder Services (ISS) affects firms’ interactions with shareholders. Our analyses exploit a quasi-natural experiment using Say-On-Pay voting outcomes near a threshold that triggers a review of engagement activities by 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 that align with shareholder feedback, and enjoy ex-post economic benefits, including higher shareholder returns. Our findings demonstrate a lasting and disciplinary spillover effect of ISS monitoring through enhanced and enduring shareholder communications.
Keywords: Proxy advisors, ISS, shareholder engagement, executive compensation, Say-On-Pay
JEL Classification: D72, D82, G34, G38, M12
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