Proxy Advisory Firms and Corporate Shareholder Engagement

76 Pages Posted: 2 Jul 2021

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 Department

Date Written: June 22, 2021

Abstract

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

Suggested Citation

Dey, Aiyesha and Starkweather, Austin and White, Joshua T., Proxy Advisory Firms and Corporate Shareholder Engagement (June 22, 2021). Harvard Business School Accounting & Management Unit Research Paper Series No. 21-137, 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 Department ( email )

United States

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