Proxy Advisory Firms: The Economics of Selling Information to Voters

53 Pages Posted: 3 Apr 2016 Last revised: 27 Aug 2018

See all articles by Andrey Malenko

Andrey Malenko

MIT Sloan School of Management

Nadya Malenko

Boston College - Carroll School of Management

Date Written: August 20, 2018

Abstract

We analyze how proxy advisors, which sell voting recommendations to shareholders, affect corporate decision-making. If the quality of the advisor's information is low, there is overreliance on its recommendations and insufficient private information production. In contrast, if the advisor's information is precise, it may be underused because the advisor rations its recommendations to maximize profits. Overall, the advisor's presence leads to more informative voting only if its information is sufficiently precise. We evaluate several proposals on regulating proxy advisors and show that some suggested policies, such as reducing proxy advisors' market power or decreasing litigation pressure, can have negative effects.

Keywords: Proxy advisors, sale of information, information acquisition, shareholder voting, strategic voting, information aggregation

JEL Classification: D42, D71, D72, D82, G34, G38, L12

Suggested Citation

Malenko, Andrey and Malenko, Nadya, Proxy Advisory Firms: The Economics of Selling Information to Voters (August 20, 2018). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2757597 or http://dx.doi.org/10.2139/ssrn.2757597

Andrey Malenko

MIT Sloan School of Management ( email )

100 Main Street
E62-619
Cambridge, MA 02142
United States
617-225-9301 (Phone)

HOME PAGE: http://www.mit.edu/~amalenko

Nadya Malenko (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

HOME PAGE: http://www2.bc.edu/nadya-malenko/

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