Working Paper: CEPR ID: DP16352
Authors: Andrey Malenko; Nadya Malenko; Chester Spatt
Abstract: We analyze how a profit-maximizing proxy advisor designs vote recommendations and research reports. The advisor benefits from producing informative, unbiased reports, but only partially informative recommendations, biased against the a priori likely alternative. Such recommendations induce close votes, increasing controversy, and thereby the relevance and value of proxy advice. Our results suggest shifting from an exclusive emphasis on recommendations, highlighting the importance of both reports and recommendations in proxy advisors' information provision. They rationalize the one-size-fits-all approach and help reinterpret empirical patterns of voting behavior, suggesting that proxy advisors' recommendations may not be a suitable benchmark for evaluating shareholders' votes.
Keywords: proxy advisor; voting; sale of information; information design; bayesian persuasion; controversy; bias; corporate governance
JEL Codes: D72; D82; D83; G34; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Proxy advisors' recommendations (G34) | Shareholder voting behavior (G34) |
| Biased public recommendations (D72) | Shareholder uncertainty (G34) |
| Shareholder uncertainty (G34) | Informed voting decisions (D72) |
| Proxy advisors' bias in recommendations (G34) | Close votes (K16) |
| Proxy advisors' recommendations (G34) | Voting outcomes (D72) |