The real effects of proxy advisors on the firm

Paul Calluzzo and Evan Dudley

Financial Management, 2019, vol. 48, issue 3, 917-943

Abstract: This paper examines the influence of proxy advisors (PA) on firm voting outcomes, policies, and value. We measure PA influence with shareholders' historical propensity to follow PA recommendations. PA influence increases the impact of PA recommendations on proxy voting outcomes and firm policies. When shareholders have private incentives to engage in costly research in the absence of a proxy advisor, PA influence neither harms nor benefits shareholder value. However, at firms with dispersed shareholders PA influence can increase value. Our findings are consistent with theories of voting in which proxy advisors compete with private information acquisition efforts by large shareholders.

Date: 2019
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