A paper co-authored by our faculty titled “Information Bias in the Proxy Advisory Market” has received the Rising Scholar Award by The Review of Corporate Finance Studies (RCFS). Assistant Professor YAN Xiong of the Department of Finance co-authored this paper alongside MA Shichao, PhD graduate from the University of Rochester.
As investors increasingly rely on proxy advisors such as Institutional Shareholder Services (ISS) in deciding how to vote in corporate elections, Yan and her co-author construct a theoretical model to examine the biases that can occur when the proxy advisor is a profit-maximizer. An intuitive finding is that a conflicted proxy advisor provides biased recommendations. More interestingly, if shareholders have either distorted preferences or distorted beliefs, even an unconflicted advisor finds it profit-maximizing to cater to shareholders, rather than provide the recommendation most consistent with maximizing firm value. Read the original paper here.
The RCFS awards and publishes theoretical, empirical, and experimental papers on the basis of their contribution to the field of corporate finance, including subjects related to a firm's interaction with stakeholders, internal corporate structure, management capital, and more. And the Rising Scholar Award is selected by the board of editors from the highest quality paper submitted to RCFS by authors who received either their current academic appointment or most recent PhD within six years.
