Creating Controversy in Proxy Voting Advice

61 Pages Posted: 13 May 2021 Last revised: 6 Nov 2023

See all articles by Andrey Malenko

Andrey Malenko

Boston College; European Corporate Governance Institute (ECGI)

Nadya Malenko

Boston College, Carroll School of Management; National Bureau of Economic Research (NBER); Finance Theory Group (FTG); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Chester S. Spatt

Carnegie Mellon University - David A. Tepper School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 2, 2023

Abstract

We analyze the design of vote recommendations and research reports by a profit-maximizing proxy advisor. The advisor benefits from biasing its recommendations against the a priori likely alternative, thereby "creating controversy" for the vote. Conversely, it serves the advisor's interest to produce precise and unbiased reports. Our results suggest a move away from exclusive emphasis on recommendations, highlighting that both reports and recommendations are important in proxy advisors' information provision. They rationalize the one-size-fits-all approach in recommendations and help reinterpret empirical patterns of voting behavior, suggesting that proxy advisors' recommendations may not be a suitable benchmark for evaluating shareholders' votes.

The Online Appendix is available at: https://www.nadyamalenko.com

Keywords: proxy advisor, voting, sale of information, information design, Bayesian persuasion, controversy, bias, proxy research reports, vote recommendations

JEL Classification: D72, D82, D83, G34, K22

Suggested Citation

Malenko, Andrey and Malenko, Nadya and Spatt, Chester S., Creating Controversy in Proxy Voting Advice (November 2, 2023). European Corporate Governance Institute – Finance Working Paper No. 772/2021, Available at SSRN: https://ssrn.com/abstract=3843674 or http://dx.doi.org/10.2139/ssrn.3843674

Andrey Malenko

Boston College

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European Corporate Governance Institute (ECGI) ( email )

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Nadya Malenko (Contact Author)

Boston College, Carroll School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Finance Theory Group (FTG) ( email )

United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Chester S. Spatt

Carnegie Mellon University - David A. Tepper School of Business ( email )

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Pittsburgh, PA 15213-3890
United States
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412-268-6689 (Fax)

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