Advising the Management

53 Pages Posted: 25 Aug 2018 Last revised: 6 Jun 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

MIT Sloan School of Management

Nadya Malenko

Boston College - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: June 4, 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 ownership is endogenous and shareholders differ in beliefs, 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 (June 4, 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

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 - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
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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