The agency role of proxy advisors in family firms

Abstract

This paper examines the unique nature of the agency conflict in listed family firms by comparing the role of Proxy Advisors (PAs) in family and non-family firms. Building on corporate governance and family firm literature, we hypothesize that family owner´s pursuit of nonfinancial goals leads PAs to issue more negative recommendations against the voting proposals of family firms relative to nonfamily firms. We also argue that the severity of the principal-principal conflict in family firms increases the influence of these recommendations over the votes of investors in family firms. Additionally, we argue that the principal-principal conflict is not the same across family firms and hence the influence of PAs over investors votes is moderated by the presence of a family CEO. Using Fortune 1000 firms between 2011-2017, we find support for all our hypotheses except for the one regarding to the influence of PAs over investors votes. Contrary to our hypothesis, PAs exercise less influence over the votes of investors in family firms than nonfamily firms.