Information Bias in the Proxy Advisory Market

65 Pages Posted: 13 Jun 2019 Last revised: 29 Jun 2020

See all articles by Shichao Ma

Shichao Ma

University of Rochester

Yan Xiong

The Hong Kong University of Science and Technology

Date Written: December 4, 2019

Abstract

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

Ma, Shichao and Xiong, Yan, Information Bias in the Proxy Advisory Market (December 4, 2019). Available at SSRN: https://ssrn.com/abstract=3396151 or http://dx.doi.org/10.2139/ssrn.3396151

Shichao Ma

University of Rochester ( email )

Rochester
United States

Yan Xiong (Contact Author)

The Hong Kong University of Science and Technology ( email )

HKUST
Kowloon
Hong Kong
Hong Kong

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