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Empirical Evidence on the Role of Proxy Advisors in European Capital Markets

Abstract Responding to regulators’ requests and filling a void in the academic literature, this paper provides comprehensive empirical evidence on the role of proxy advisors in 14 European countries. Exploiting coverage data and using content analysis of proxy voting reports by Institutional Shareholder Services and Glass Lewis, we provide descriptive analyses of proxy advisors’ firm coverage, the variation and determinants of voting recommendations, the relation between voting recommendations and shareholder voting at annual general meetings, and market reactions to the release of voting recommendations. Overall, our findings suggest an economically important role of proxy advisors in European markets. Throughout our analyses, we document that this role varies with governance- and ownership-related firm characteristics and with country-level measures of institutional strength.