Creating Controversy in Proxy Voting Advice

58 Pages Posted: 13 May 2021 Last revised: 16 May 2022

See all articles by Andrey Malenko

Andrey Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR)

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business; 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: May 12, 2022

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.


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

Malenko, Andrey and Malenko, Nadya and Spatt, Chester S., Creating Controversy in Proxy Voting Advice (May 12, 2022). 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

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nadya Malenko (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
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 )

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

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