Discussion paper
DP17413 When do proxy advisors improve corporate decisions?
This paper studies the impact of proxy advisors (PAs) on shareholder decision-making. We posit two assumptions: (i) the board of directors has a better signal regarding the value-maximizing decision on a given issue than any single shareholder can have based on own research; (ii) shareholders can condition their investment in information acquisition on the PA's recommendation. If only assumption (i) holds, shareholders lack research incentives; PAs are not the root cause of suboptimal shareholder incentives. If assumption (ii) additionally holds, shareholders use PA recommendations to identify controversial issues for further investigation. Consequently, a PA improves corporate decision quality.
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