The empire strikes back : voluntary disclosure in response to ISS unfavourable recommendations

Abstract

We study a novel type of corporate voluntary disclosure, which is issued in response to Institutional Shareholder Services (ISS) unfavorable recommendations and intended to win shareholders’ support in proxy voting. We show that firms with a larger size, higher institutional ownership, lower insider ownership, and better corporate governance are more likely to issue the disclosure. The disclosure is effective in tilting the voting outcome in favor of the management, and the stock market reacts positively to the disclosure. Further investigation shows that strike-back disclosures with high readability and fact-based claims receive more positive market reactions and are more effective in gaining shareholders’ support. Our paper extends the literature on proxy advisor and the literature on voluntary disclosure.