Advising the Management

41 Pages Posted: 25 Aug 2018 Last revised: 17 Sep 2018

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 - Carroll School of Management

Date Written: September 9, 2018

Abstract

We study the optimal size and composition of an advisory committee when information is dispersed and informed parties differ in preferences and beliefs. If agents have similar objectives but disagree due to different beliefs, communication by committee members exhibits positive externalities, and the manager's expertise enhances the committee's advisory role. Conversely, if agents have conflicting preferences, communication externalities are negative, and managerial expertise impedes the advising effectiveness. The optimal advisory body includes all informed agents under heterogeneous beliefs, but a strict subset of informed agents under heterogeneous preferences. Thus, advisory shareholder voting (board) is optimal in the former (latter) case.

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 9, 2018). 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 - 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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