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When Do Proxy Advisors Improve Corporate Decisions?

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  • Büchel, Berno
  • Mechtenberg, Lydia
  • Wagner, Alexander F.

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.
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Suggested Citation

  • Büchel, Berno & Mechtenberg, Lydia & Wagner, Alexander F., 2023. "When Do Proxy Advisors Improve Corporate Decisions?," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277704, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc23:277704
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    References listed on IDEAS

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    Cited by:

    1. Laurent Bouton & Aniol Llorente-Saguer & Antonin Macé & Adam Meirowitz & Shaoting Pi & Dimitrios Xefteris, 2024. "Public Information as a Source of Disagreement," PSE Working Papers halshs-04075483, HAL.
    2. Shu, Chong, 2024. "The proxy advisory industry: Influencing and being influenced," Journal of Financial Economics, Elsevier, vol. 154(C).

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    More about this item

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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