Advising the Management

59 Pages Posted: 25 Aug 2018 Last revised: 18 Sep 2019

See all articles by Ali Kakhbod

Ali Kakhbod

Massachusetts Institute of Technology (MIT) - Department of Economics

Uliana Loginova

Columbia University - Graduate School of Arts and Sciences

Andrey Malenko

Boston College - Carroll School of Management

Nadya Malenko

Boston College, Carroll School of Management, Students; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: September 17, 2019

Abstract

We study the optimal size and composition of an advisory committee when shareholders differ in preferences and beliefs and strategically acquire and communicate information. If shareholders and management have similar objectives but disagree due to different beliefs, and information is cheap, the optimal advisory body includes all shareholders. Conversely, if agents have conflicting preferences or information is sufficiently costly, the optimal advisory body is a strict subset of shareholders. Thus, advisory voting (board) is optimal in the former (latter) case. If shareholders differ in beliefs and can trade, combining advisory shareholder voting with a diverse board can be optimal.

Keywords: advisory board, advisory voting, cheap talk, communication, heterogeneous beliefs, information aggregation

JEL Classification: D71, D74, D82, D83, G34

Suggested Citation

Kakhbod, Ali and Loginova, Uliana and Malenko, Andrey and Malenko, Nadya, Advising the Management (September 17, 2019). Available at SSRN: https://ssrn.com/abstract=3231365 or http://dx.doi.org/10.2139/ssrn.3231365

Ali Kakhbod

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Uliana Loginova

Columbia University - Graduate School of Arts and Sciences ( email )

New York, NY 10027
United States

Andrey Malenko

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Nadya Malenko (Contact Author)

Boston College, Carroll School of Management, Students ( email )

Boston, MA
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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