Role of proxy advisory firms in India

Abstract

In India, Institutional investors constitute about 31% of the equity marketi . For these investors, different decisions about the companies they are investing in matter a lot. Shareholders do not have control over the internal operations inside a company but are impacted by these activities. Hence, choosing the right management and BoD for a company plays a vital role in ensuring that the operations in the company are executed in the best interest of shareholders. Decisions such as choosing right management, the board of directors, mergers, and acquisitions, say on pay can impact the company growth as well as the stock market. Moreover, as companies grow, they face principal-agent problems. The management might have different goals than the shareholders, and a lot of information might not be completely visible to common shareholders. As the word is becoming informationally efficient, investors too, are becoming more careful about their voting decisions. The due diligence required to make these decisions can be taxing and time-demanding and can make the investor vote without proper thought. This is one of the several reasons proxy advisory firms (PAFs) came into existence