Proxy Advisory Firms and Corporate Shareholder Engagement

We study how Institutional Shareholder Services (ISS) affects firms' engagement with shareholders. Our analyses exploit a quasi-natural experiment using Say-On-Pay voting outcomes near a threshold that triggers a review of engagement activities by ISS. Firms receiving ISS treatment exhibit swift and substantive increases in extensive and intensive margins of engagement, especially when their boards have higher agency conflicts and directors are more likely to lose voting support from ISS. Increases in engagement persist over time, which shareholders appear to value. Collectively, we shed light on an unexplored channel through which ISS positively influences firms' governance and information environments.