Creating Controversy in Proxy Voting Advice
58 Pages Posted: 13 May 2021 Last revised: 16 May 2022
Date Written: May 12, 2022
We analyze the design of recommendations (available to all shareholders) and research reports (available only to subscribers) by a proxy advisor, who maximizes profits from selling information to shareholders. We show that the advisor benefits from biasing its recommendations against the a priori more likely alternative, thereby "creating controversy" for the vote. In contrast, it serves the advisor's interest to produce precise and unbiased research reports. Our results help reinterpret empirical patterns of shareholders' voting behavior, suggesting that proxy advisors' recommendations may not be a suitable benchmark for evaluating shareholders' votes. Our model also rationalizes the one-size-fits-all approach in recommendations.
The Online Appendix is available at https://www.nadyamalenko.com/Malenko,Malenko,Spatt_OnlineAppendix.pdf.
Keywords: proxy advisor, voting, sale of information, information design, Bayesian persuasion, controversy, bias, corporate governance
JEL Classification: D72, D82, D83, G34, K22
Suggested Citation: Suggested Citation