Do Corporate Governance Ratings Change Investor Expectations? Evidence from Announcements by Institutional Shareholder Services*

Interim news and the role of proxy voting advice

Paul M Guest and Marco Nerino

Review of Finance, 2020, vol. 24, issue 4, 891-928

Abstract: This paper examines empirically the announcement effect of commercial corporate governance ratings on share returns. Rating downgrades by Institutional Shareholder Services (ISS) are associated with negative returns of –1.14% over a 3-day announcement window. The returns are highly correlated with the proprietary analysis of ISS and are decreasing in agency costs, consistent with ratings providing independent information on underlying corporate governance quality. We thus show that the influence and impact of ISS extends beyond proxy recommendations and subsequent voting outcomes. Our findings contrast with the insignificant price impact of Daines, Gow, and Larcker (2010), whose analysis we replicate and successfully reconcile to ours by pooling upgrades and downgrades together.

Keywords: Corporate governance ratings; Information intermediaries; Event study; Information content; Institutional shareholder services (search for similar items in EconPapers)
JEL-codes: G14 G24 G34 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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