Shareholder Engagement and Corporate Behavior : The Case of Environmental and Social Issues.

Summary This doctoral dissertation addresses socially responsible investing from several perspectives. First, we seek to determine how companies respond to shareholder engagement on environmental and social issues. Our analysis is based on a dataset of shareholder proposals at the annual general meetings of S&P 1500 companies. Through this analysis, we attempt to measure the impact of voting or withdrawing a proposal on the company's extra-financial performance. After controlling for potential endogeneity problems, we find a positive association between the submission of both environmental and social proposals in the same year and the improvement of the firm's extra-financial performance, both in the short and long term. The results indicate that strong shareholder engagement on various issues can lead to changes in the extra-financial performance of companies. Our research also focuses on studying the voting dynamics underlying shareholder proposals. We try to determine how proposals on similar issues, voted on (or withdrawn) in the past or in the same year, can affect the voting outcome for a proposal today. The results show that when an issue has been the subject of a shareholder proposal in the past, a new proposal on that same issue would receive less support from shareholders today. On the other hand, a low level of shareholder support for a proposal in the past would mean less shareholder support for a proposal in a similar theme today. We also look at the extent to which ESG information is integrated into financial information flows, and in particular whether financial analysts take non-financial information into account in their financial projections. We find that financial analysts expect an improvement in corporate benefits to translate into lower earnings per share (EPS) in the short term, whereas this effect is not apparent when based on realized EPS, which would suggest that financial analysts are wrong in their estimates. However, a decrease in social defaults (i.e. an improvement in the company's social policy) results in both an improvement in estimated EPS and an increase in realized EPS. Consequently, financial analysts seem to correctly anticipate the positive impacts generated by the improvement in social default, which is then perceived as a positive signal for the company's financial performance.