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Outsourcing corporate governance : conflicts of interest within the proxy advisory industry
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Li, Tao (2016) Outsourcing corporate governance : conflicts of interest within the proxy advisory industry. Management Science, 64 (6). pp. 2951-2971. doi:10.1287/mnsc.2016.2652 ISSN 0025-1909.
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Official URL: http://dx.doi.org/10.1287/mnsc.2016.2652
Abstract
Proxy advisory firms wield large influence with voting shareholders. However, conflicts of interest may arise when an advisor sells services to both investors and issuers. Using a unique data set on voting recommendations, I find that for most types of proposals, competition from a new entrant reduces favoritism toward management by an incumbent advisor that serves both corporations and investors. The results are not driven by factors that influence the entrant’s coverage decision, such as the marginal cost of new coverage or previously biased recommendations by the incumbent. Similar to other information intermediaries, biased advice by proxy advisors is shown to have real, negative consequences that allow management to enjoy greater private benefits. These results suggest conflicts of interest are a real concern in the proxy advisory industry, and increasing competition could help alleviate them.
Item Type: | Journal Article | ||||||
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Subjects: | H Social Sciences > HG Finance | ||||||
Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||
Library of Congress Subject Headings (LCSH): | Proxy advisory firms, Stockholders, Corporate governance | ||||||
Journal or Publication Title: | Management Science | ||||||
Publisher: | Institute for Operations Research and the Management Sciences (I N F O R M S) | ||||||
ISSN: | 0025-1909 | ||||||
Official Date: | 16 December 2016 | ||||||
Dates: |
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Volume: | 64 | ||||||
Number: | 6 | ||||||
Page Range: | pp. 2951-2971 | ||||||
DOI: | 10.1287/mnsc.2016.2652 | ||||||
Status: | Peer Reviewed | ||||||
Publication Status: | Published | ||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||
Date of first compliant deposit: | 12 October 2016 | ||||||
Date of first compliant Open Access: | 16 December 2017 | ||||||
Funder: | Columbia university Graduate school of business |
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