← Search

Journal of Finance Vol. 74 No. 5 2019

Proxy Advisory Firms: The Economics of Selling Information to Voters

Andrey Malenko; Nadya Malenko1,2

1 Andrey Malenko is at Carroll School of Management, Boston College. Nadya Malenko is at Carroll School of Management, Boston College. We are grateful to Philip Bond (the Editor), the Associate Editor, two anonymous referees, Rui Albuquerque, Alessandro Bonatti, Guojun Chen, Jonathan Cohn, Douglas Dia · 2 Andrey Malenko is at Carroll School of Management, Boston College. Nadya Malenko is at Carroll School of Management, Boston College. We are grateful to Philip Bond (the Editor), the Associate Editor, two anonymous referees, Rui Albuquerque, Alessandro Bonatti, Guojun Chen, Jonathan Cohn, Douglas Dia

Abstract

We analyze how proxy advisors, which sell voting recommendations to shareholders, affect corporate decision‐making. If the quality of the advisor's information is low, there is overreliance on its recommendations and insufficient private information production. In contrast, if the advisor's information is precise, it may be underused because the advisor rations its recommendations to maximize profits. Overall, the advisor's presence leads to more informative voting only if its information is sufficiently precise. We evaluate several proposals on regulating proxy advisors and show that some suggested policies, such as reducing proxy advisors' market power or decreasing litigation pressure, can have negative effects.

DOI
10.1111/jofi.12779
Volume
74
Issue
5
Pages
2441-2490
Language
en
Sources
bibtex:phds-export.bib openalex crossref

Cite