The Role of Proxy Advisory Firms: Evidence from a Regression-Discontinuity Design

Nadya Malenko and Yao Shen

The Review of Financial Studies, 2016, vol. 29, issue 12, 3394-3427

Abstract: Proxy advisory firms have become important players in corporate governance, but the extent of their influence over shareholder votes is debated. We estimate the effect of Institutional Shareholder Services (ISS) recommendations on voting outcomes by exploiting exogenous variation in ISS recommendations generated by a cutoff rule in ISS voting guidelines. Using a regression discontinuity design, we find that from 2010 to 2011, a negative ISS recommendation on a say-on-pay proposal leads to a 25 percentage point reduction in say-on-pay voting support, suggesting a strong influence over shareholder votes. We also use our setting to examine the informational role of ISS recommendations.Received April 13, 2015; editorial decision June 13, 2016 by Editor Itay Goldstein.

JEL-codes: D72 G34 J33 M12 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (68)

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The Review of Financial Studies is currently edited by Itay Goldstein

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