Information Bias in the Proxy Advisory Market
65 Pages Posted: 13 Jun 2019 Last revised: 29 Jun 2020
Date Written: December 4, 2019
We study an information-sale problem in which a monopolist proxy advisor sells recommendations to a firm's shareholders for corporate voting. We find that even an unconflicted proxy advisor skews its recommendations based on its clients' beliefs or preferences. The firm value is determined by a novel bias-quantity trade-off. Under some parameters, shareholders' biased beliefs or preferences can lead to more information purchases, which enhances their collective decision-making. Thus the firm value may increase despite the negative effects of biased proxy-voting recommendations.
Keywords: Information sales, Bias, Proxy advisor, Conflicts of interest, Shareholder voting
JEL Classification: D82, G34, L15
Suggested Citation: Suggested Citation