When do proxy advisors improve corporate decisions?

Abstract

This paper studies the impact of proxy advisors on shareholder decision-making. We posit two assumptions: (i) the board is at least as well informed as any individual shareholder; (ii) shareholders can condition their information acquisition on the proxy advisor's (PA) recommendation. If only (i) holds, shareholders optimally rubber-stamp the board's proposal and do not invest in private research. If (ii) additionally holds, disagreement between the board and the PA can trigger private information acquisition by some shareholders. We identify the conditions under which this mechanism restores value-of-information logic and improves the informational quality of shareholder voting outcomes.