When do proxy advisors improve corporate decisions?

Berno Buechel, Lydia Mechtenberg and Alexander Wagner
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Berno Buechel: University of Fribourg - Faculty of Economics and Social Science
Lydia Mechtenberg: University of Hamburg
Authors registered in the RePEc Author Service: Berno Büchel

No 22-47, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: There is an ongoing debate about how proxy advisory firms affect corporate decisions. A major concern is that shareholders seeking to save costs use a proxy advisor's vote recommendation as substitute for own research, thereby reducing efficiency of shareholder decision-making. We show that the opposite effect -- complementarity between a proxy advisor's recommendation and shareholders' research effort -- occurs if two conditions are met: (i) the board of directors is sufficiently well informed; and (ii) shareholders can condition their investment in research on the proxy advisor's recommendation. Then, a proxy advisor with information quality sufficiently close to that of the board's strictly improves corporate decisions, while a proxy advisor with a more diverging information quality leaves corporate decisions unaffected.

Keywords: Proxy advisors; strategic voting (search for similar items in EconPapers)
JEL-codes: D72 D83 G23 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2022-05
New Economics Papers: this item is included in nep-cdm and nep-cfn
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2247

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