Outsourcing Shareholder Voting to Proxy Advisory Firms

Larcker, David F.; McCall, Allan L.; Ormazábal, Gaizka

doi:10.1086/682910

Cited by 186 publications

(75 citation statements)

References 12 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Larcker, McCall, and Ormazabal (2015) show that …rms change their compensation policies prior to say-on-pay votes in a manner consistent with proxy advisor recommendations, particularly if the …rm is likely to receive a negative proxy advisor recommendation in the absence of a policy change, if directors had received below-median support at the previous annual meeting, and if the …rm has above-median ownership by dispersed investors. Such changes are met by negative stock market reactions, suggesting that the desire to win proxy advisor support leads …rms to cater to their policies rather than implement optimal pay structures.…”

Section: Proxy Advisory Firmsmentioning

confidence: 92%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public firms to private and non-U.S. firms. We then critically analyze three non-exclusive explanations for what drives executive pay -shareholder value maximization by boards, rent extraction by executives, and institutional factors such as regulation, taxation, and accounting policy. We confront each hypothesis with the evidence. While shareholder value maximization is consistent with many practices that initially seem inefficient, no single explanation can account for all facts and historical trends; we highlight major gaps for future research. We discuss evidence on the effects of executive pay, highlighting recent identification strategies, and suggest policy implications grounded in theoretical and empirical research. Our survey has two main goals. First, we aim to tightly link the theoretical literature to the empirical evidence, and combine the insights contributed by all three views on the drivers of pay. Second, we aim to provide a user-friendly guide to executive compensation, presenting shareholder value theories using a simple unifying model, and discussing the challenges and methodological issues with empirical research. JEL-Codes: D310, D860, G340, M120. Terms of use: Documents in

show abstract

Section: Proxy Advisory Firmsmentioning

confidence: 92%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…following previous studies that suggest that say-on-pay votes alter the level and composition of executive compensation (Larcker, McCall, and Ormazabal, 2015;Balsam et al, 2016;Iliev and Vitanova, 2019 Notably, there is a strong positive correlation (0.853) between CEO and CFO total compensation, which is higher than the correlation (0.514) between CEO and director compensation documented by Brick et al (2006). Similarly, CEO delta is also strongly correlated with CFO delta (0.591).…”

Section: Datamentioning

confidence: 70%

Does Sensationalism Affect Executive Compensation? Evidence from Pay Ratio Disclosure Reform

et al. 2019

View full text Add to dashboard Cite

Beginning in 2018, publicly-traded U.S. firms were required to report the ratio of the chief executive officer's (CEO) compensation to that of the median employee's compensation in the annual proxy statement. Our study examines the effect of the mandated pay ratio disclosure on executive compensation. We find that pay ratio disclosure leads to declines in both total compensation and pay-for-performance sensitivity for CEOs relative to chief financial officers (CFOs). Our effects are strongest for firms that are more sensitive to political pressure. Taken together, our paper provides the first evidence that pay ratio disclosure achieves regulators' goal of curtailing CEO compensation but also leads to an unintended decline in pay-for-performance sensitivity.JEL Classification: G34, G38, M12, M52

show abstract

“…One way to infer the extent of private information acquisition is to look at shareholders' votes: shareholders who acquire private information are more likely to deviate from proxy advisors' recommendations. For example, the evidence in Iliev and Lowry (), Ertimur, Ferri, and Oesch (), Larcker, McCall, and Ormazabal (), and Malenko and Shen () suggests that shareholders are more likely to conduct independent research when they are large, have a large investment in the firm, and have low turnover. Another, more direct, way to measure private information acquisition is the approach of Iliev, Kalodimos, and Lowry (), who study the downloads of firms' proxy statements and proxy‐related SEC filings by large mutual fund families using IP address data.…”

Section: Empirical Implicationsmentioning

confidence: 99%

“…See Alexander et al. (), Ertimur, Ferri, and Oesch (), Iliev and Lowry (), Larcker, McCall, and Ormazabal (), Malenko and Shen (), and McCahery, Sautner, and Starks (), among others.…”

mentioning

confidence: 99%

Proxy Advisory Firms: The Economics of Selling Information to Voters

Malenko¹,

Malenko

2019

The Journal of Finance

View full text Add to dashboard Cite

We analyze how proxy advisors, which sell voting recommendations to shareholders, affect corporate decision-making. If the quality of the advisor's information is low, there is overreliance on its recommendations and insufficient private information production. In contrast, if the advisor's information is precise, it may be underused because the advisor rations its recommendations to maximize profits. Overall, the advisor's presence leads to more informative voting only if its information is sufficiently precise. We evaluate several proposals on regulating proxy advisors and show that some suggested policies, such as reducing proxy advisors' market power or decreasing litigation pressure, can have negative effects. , and participants at multiple seminars and conferences for helpful comments. The authors do not have any conflicts of interest as identified in the Journal of Finance's disclosure policy.

show abstract

Outsourcing Shareholder Voting to Proxy Advisory Firms

Cited by 186 publications

References 12 publications

Executive Compensation: A Survey of Theory and Evidence

Executive Compensation: A Survey of Theory and Evidence

Does Sensationalism Affect Executive Compensation? Evidence from Pay Ratio Disclosure Reform

Proxy Advisory Firms: The Economics of Selling Information to Voters

Contact Info

Product

Resources

About