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Information Bias in the Proxy Advisory Market

Author

Listed:
  • Shichao Ma
  • Yan Xiong

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. A novel bias-quantity relationship affects firm value. Under some parameters, shareholders’ biased beliefs or preferences can lead shareholders to make more information purchases, which enhances their collective decision-making. Thus, firm value may increase despite the negative effects of biased proxy voting recommendations. JEL D82, G34, L15Received: April 16, 2019; editorial decision March 25, 2020 by Editor Uday Rajan.

Suggested Citation

  • Shichao Ma & Yan Xiong, 2021. "Information Bias in the Proxy Advisory Market," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(1), pages 82-135.
    • Handle: RePEc:oup:rcorpf:v:10:y:2021:i:1:p:82-135.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfaa005
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    Citations

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    Cited by:

    1. Berno Buechel & Lydia Mechtenberg & Alexander F. Wagner, 2022. "When do proxy advisors improve corporate decisions?," Swiss Finance Institute Research Paper Series 22-47, Swiss Finance Institute.
    2. Laurent Bouton & Aniol Llorente-Saguer & Antonin Macé & Adam Meirowitz & Shaoting Pi & Dimitrios Xefteris, 2023. "Public Information as a Source of Disagreement Among Shareholders," PSE Working Papers halshs-04075483, HAL.
    3. Efrat Dressler & Yevgeny Mugerman, 2023. "Doing the Right Thing? The Voting Power Effect and Institutional Shareholder Voting," Journal of Business Ethics, Springer, vol. 183(4), pages 1089-1112, April.
    4. Liu, Qizhi, 2022. "Identifying and correcting the defects of the Saaty analytic hierarchy/network process: A comparative study of the Saaty analytic hierarchy/network process and the Markov chain-based analytic network ," Operations Research Perspectives, Elsevier, vol. 9(C).
    5. Shu, Chong, 2024. "The proxy advisory industry: Influencing and being influenced," Journal of Financial Economics, Elsevier, vol. 154(C).

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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