Organizational and Institutional Contingencies behind the Utilization of Proxy Advice in Shareholder Dissent

Proxy advisory firms are important gatekeepers offering advice to shareholders. While proxy advice is often viewed critically, we have little systematic evidence of its influence on shareholder dissent—i.e., shareholder votes cast against management at shareholder meetings. Grounded in comparative corporate governance research, we examine the organizational and institutional factors that affect the use of proxy advice. Based on an extensive sample of more than 13,700 voting results from 16 Western European countries, we find that organizational factors decrease the use of proxy advice if a large shareholder or an independent board is present, but large institutional investors amplify the use of proxy advice. From an institutional perspective, formal legal institutions impose more responsibilities on shareholders, which increases proxy advice utilization. Informal institutions may lower the use of proxy advice if shareholders actively collect information, while a more trusting shareholder base increases the use of proxy advice. Implications for theory and practice are discussed.