XXVI Edition

14-15-16 December 2017"

The influence of proxy advisors in international corporate governance

Heinen Vanda, Johannes Gutenberg University Mainz
Scharfbillig Mario, Johannes Gutenberg University Mainz

We examine the patterns and impact of shareholder voting recommendations of foreign and domestic proxy advisors in international corporate governance, specifically Germany. Proxy advisors are facilitators of institutional shareholder control over domestic and foreign investments. First, we document differences and similarities between recommendation by globally active proxy advisors (ISS, GlassLewis) and of domestically focused proxy advisors (IVOX) on annual general meetings in Germany between 2013 and 2015 and find that they regularly diverge. Second, we observe that recommendations are significantly associated with lower voting outcomes for both foreign as well as domestic proxy advisors. Thirdly, we show that their influence is moderated by the shareholder structure of firms, consistent with shareholder monitoring theory. Lastly, we are able to show that the influence does not differ based on the share of shareholder from different origins. To verify our results, we employ a natural experiment, which prevented foreign investors from fully voting their shares in 2013 in Germany in order to show, that proxy advisor recommendations are equally influential for German investors. Overall, our results imply that the information relevance of voting recommendations of proxy advisors do not completely overlap and differ substantially between foreign and domestic proxy advisors, but provide distinct pieces of equally relevant information for international as well as national shareholders.

Area: Corporate Governance (Nedcommunity Award)

Keywords: Annual general meeting, proxy advisory, voting recommendations, voting outcomes, corporate governance

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