Information Bias in the Proxy Advisory Market

Shichao Ma and Yan Xiong

The Review of Corporate Finance Studies, 2021, vol. 10, issue 1, 82-135

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.

Date: 2021
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