Proxy Advisory Firms and Corporate Shareholder Engagement

80 Pages Posted: 2 Jul 2021 Last revised: 25 Jan 2023

See all articles by Aiyesha Dey

Aiyesha Dey

Harvard Business School

Austin Starkweather

University of South Carolina Moore School of Business

Joshua T. White

Vanderbilt University - Finance

Date Written: January 24, 2023

Abstract

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

Suggested Citation

Dey, Aiyesha and Starkweather, Austin and White, Joshua T., Proxy Advisory Firms and Corporate Shareholder Engagement (January 24, 2023). Harvard Business School Accounting & Management Unit Research Paper Series No. 21-137, European Corporate Governance Institute – Finance Working Paper No. 819/2022, Available at SSRN: https://ssrn.com/abstract=3871948 or http://dx.doi.org/10.2139/ssrn.3871948

Aiyesha Dey

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Austin Starkweather

University of South Carolina Moore School of Business ( email )

1014 Greene St
Columbia, SC 29208
United States

HOME PAGE: http://www.astarkweather.com

Joshua T. White (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
530
Abstract Views
2,646
Rank
80,496
PlumX Metrics