Working Paper: NBER ID: w29036
Authors: Andrey Malenko; Nadya Malenko; Chester S. Spatt
Abstract: We analyze the design of recommendations (available to all shareholders) and research reports (available only to subscribers) by a proxy advisor, who maximizes profits from selling information to shareholders. We show that the advisor benefits from biasing its recommendations against the a priori more likely alternative, thereby “creating controversy” for the vote. In contrast, it serves the advisor’s interest to produce precise and unbiased research reports. Our results help reinterpret empirical patterns of shareholders’ voting behavior, suggesting that proxy advisors’ recommendations may not be a suitable benchmark for evaluating shareholders’ votes. Our model also rationalizes the one-size-fits-all approach in recommendations.
Keywords: No keywords provided
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 advisor's profit-maximizing behavior (G34) | nature of recommendations (D78) |
| biased recommendations (D91) | close voting outcomes (D72) |
| close voting outcomes (D72) | willingness of shareholders to pay for research reports (G24) |
| design of recommendations (C90) | perceived quality by shareholders (L15) |
| biased recommendations (D91) | voting behavior by shareholders (G34) |