Creating Controversy in Proxy Voting Advice

55 Pages Posted: 14 Jul 2021 Last revised: 27 May 2022

See all articles by Andrey Malenko

Andrey Malenko

Boston College

Nadya Malenko

Boston College

Chester S. Spatt

Carnegie Mellon University - David A. Tepper School of Business

Date Written: July 2021

Abstract

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.

Keywords: Bayesian persuasion, bias, controversy, corporate governance, information design, proxy advisor, sale of information, voting

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

Suggested Citation

Malenko, Andrey and Malenko, Nadya and Spatt, Chester S., Creating Controversy in Proxy Voting Advice (July 2021). CEPR Discussion Paper No. DP16352, Available at SSRN: https://ssrn.com/abstract=3886841

Andrey Malenko (Contact Author)

Boston College

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Nadya Malenko

Boston College

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Chester S. Spatt

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

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-8834 (Phone)
412-268-6689 (Fax)

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