Essays in Economic and Corporate Finance

This dissertation consists of two distinct chapters. In the first chapter, I study the outsourcing of corporate governance to proxy advisory firms, which are third-party advisors that help institutional investors decide which way to vote on corporate governance issues. Advising equity assets in trillions of dollars, these advisors play a powerful role in shaping corporate governance. First, I model how conflicts of interest arise when a proxy advisor provides advisory services to investors as well as consulting services to corporations on the same governance issues. The advisor can issue biased voting recommendations when expected reputation costs are low, compared to consulting fees. I then study how increased competition can alleviate these conflicts. Using a unique dataset on voting recommendations, I show that the entry of a new advisory firm reduces favorable recommendations for management proposals by the incumbent advisor. This is consistent with our theory as the incumbent is subject to conflicts of interest by serving both investors and corporations. These results inform the policy debate on whether and how to regulate the proxy advisory industry. The second chapter of the