Nadya Malenko

Boston College, FINANCE, Faculty Member

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Papers by Nadya Malenko

Voting on Public Goods: Citizens vs. Shareholders

The Voting Premium

Social Science Research Network, Dec 31, 2022

Deadlock on the Board

RePEc: Research Papers in Economics, Dec 1, 2017

We develop a dynamic model of board decision-making. We show that a board could be unable to make... more

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Corporate Governance Implications of the Growth in Indexing

Social Science Research Network, 2022

for helpful comments and suggestions. We have nothing to disclose. The views expressed herein are... more for helpful comments and suggestions. We have nothing to disclose. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Information Flows, Organizational Structure, and Corporate Governance

Social Science Research Network, 2023

for valuable feedback. The views expressed herein are those of the author and do not necessarily ... more for valuable feedback. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Communication and Decision-Making in Corporate Boards

Review of Financial Studies, Dec 2, 2013

This paper develops a model of communication and decision-making in corporate boards. The key ele... more This paper develops a model of communication and decision-making in corporate boards. The key element of the paper is that the quality of board communication is endogenous, because it depends on the e¤ort directors put into trying to communicate their information to others. In the model, directors may have biases regarding board decisions and may also be reluctant to disagree with other directors. If the only interaction between directors is at the decision-making stage, when decisions are made but discussion is limited, these frictions impede e¤ective decision-making because directors' decisions are not fully based on their information. However, if in addition directors can communicate their information more e¤ectively at a cost, then both stronger biases and stronger concerns for conformity at the decision-making stage might improve the board's decisions, because directors have a stronger motivation to convince others of their position. The paper provides implications for the design of board policies, including the use of open vs. secret ballot voting, the frequency of executive sessions of directors, board structure, and the role of committees. I am very grateful to my dissertation committee, Anat Admati, Paul P ‡eiderer, and Je¤rey Zwiebel, for their guidance and valuable suggestions. I am also grateful to

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The Labor Market for Directors and Externalities in Corporate Governance

Journal of Finance, Mar 18, 2016

This paper studies how directors' reputational concerns affect board structure, corporate governa... more This paper studies how directors' reputational concerns affect board structure, corporate governance, and firm value. In our setting, directors affect their firms' governance, and governance in turn affects firms' demand for new directors. Whether the labor market rewards a shareholder-friendly or management-friendly reputation is determined in equilibrium and depends on aggregate governance. We show that directors' desire to be invited to other boards creates strategic complementarity of corporate governance across firms. Directors' reputational concerns amplify the governance system: strong systems become stronger and weak systems become weaker. We derive implications for multiple directorships, board size, transparency, and board independence. Disciplines

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The Role of Proxy Advisory Firms: Evidence from a Regression-Discontinuity Design

Review of Financial Studies, Aug 22, 2016

ABSTRACT Proxy advisory firms have become important players in corporate governance but the exten... more ABSTRACT Proxy advisory firms have become important players in corporate governance but the extent of their power over shareholder votes is debated. We estimate the effect of Institutional Shareholder Services (ISS) recommendations on voting outcomes by exploiting exogenous variation in ISS recommendations generated by a cutoff rule in ISS voting guidelines. Using a regression discontinuity design, we find that a negative ISS recommendation on a say-on-pay proposal leads to a 25 percentage point reduction in voting support for the proposal. We also use our setting to examine the informational role of ISS recommendations for firms&#39; shareholders.

A theory of LBO activity based on repeated debt-equity conflicts

Journal of Financial Economics, Sep 1, 2015

We develop a theory of leveraged buyout (LBO) activity based on two elements: the ability of priv... more We develop a theory of leveraged buyout (LBO) activity based on two elements: the ability of private equity-owned …rms to borrow against their sponsors' reputation with creditors and externalities in sponsors'reputations due to competition and club formation. In equilibrium, the two sources of value creation in LBOs, operational improvements and …nancing, are complements. Moreover, sponsors that never add operational value cannot add value through …nancing either. Club deals are bene…cial ex post by allowing low-reputation bidders with high valuations to borrow reputation from high-reputation bidders with low valuations, but they can destroy value by reducing bidders' investment in reputation. Unlike leverage of independent …rms, driven only by …rm-speci…c factors, buyout leverage is driven by economy-wide and sponsor-speci…c factors. Andrey Malenko is from MIT Sloan School of Management. Nadya Malenko is from the Carroll School of Management at Boston College. We thank the anonymous referee, Nittai Bergman, Philip Bond (discussant),

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Proxy Advisory Firms: The Economics of Selling Information to Voters

Journal of Finance, May 14, 2019

We analyze how proxy advisors, which sell voting recommendations to shareholders, a¤ect corporate... more We analyze how proxy advisors, which sell voting recommendations to shareholders, a¤ect corporate decision-making. If the quality of the advisor's information is low, there is overreliance on its recommendations and insu¢ cient private information production. In contrast, if the advisor's information is precise, it may be underused because the advisor rations its recommendations to maximize pro…ts. Overall, the advisor's presence leads to more informative voting only if its information is su¢ ciently 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 e¤ects.

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Corporate Governance in the Presence of Active and Passive Delegated Investment

Social Science Research Network, 2020

We examine the governance role of delegated portfolio managers. In our model, investors decide ho... more We examine the governance role of delegated portfolio managers. In our model, investors decide how to allocate their wealth between passive funds, active funds, and private savings, and fund fees are endogenously determined. Funds'ownership stakes and fees determine their incentives to engage in governance. Whether passive fund growth improves governance depends on whether it crowds out private savings or active funds. In the former case, it improves governance even though it is accompanied by lower fund fees, whereas in the latter case it can be detrimental to governance. Overall, passive fund growth improves governance only if it does not increase fund investors' returns too much. Regulations that decrease funds'costs of engagement can be opposed by both fund investors and fund managers even though they are value-increasing.

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Timing Decisions in Organizations: Communication and Authority in a Dynamic Environment

The American Economic Review, Sep 1, 2016

We consider a problem where an uninformed principal makes a timing decision interacting with an i... more We consider a problem where an uninformed principal makes a timing decision interacting with an informed but biased agent. Because time is irreversible, the direction of the bias crucially affects the agent's ability to credibly communicate information. When the agent favors late decision making, full information revelation often occurs. In this case, centralized decision making, where the principal retains authority and communicates with the agent, implements the optimal decision-making rule. When the agent favors early decision making, communication is partial, and the optimal decision-making rule is not implemented. Delegation adds value when the bias is for early decision making, but not for late decision making. (JEL D21, D23, D82, D83) Many decisions in organizations deal with the optimal timing of taking a certain action. Because information in organizations is dispersed, the decision maker needs to rely on the information of her better-informed subordinates who, however, may have conflicting preferences. Consider the following two examples of such settings: (i) in a typical hierarchical firm, top executives may be less informed than the product manager about the optimal timing of the launch of a new product. It would not be surprising for an empire-building product manager to be biased in favor of an earlier launch; (ii) the CEO of a multinational corporation is contemplating when to shut down a plant in a struggling economic region. While the local plant manager is better informed about the prospects of the plant, he may be biased toward a later shutdown due to personal costs of relocation. These examples share a common theme. An uninformed principal faces an optimal stopping-time problem-when to exercise a real option. An agent is better informed than the principal but is biased toward earlier or later exercise. In this paper, we study how organizations make timing decisions in such a setting. We examine the

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Voting Choice

SSRN Electronic Journal

Traditionally, fund managers cast votes on behalf of investors whose capital they manage. Recentl... more Traditionally, fund managers cast votes on behalf of investors whose capital they manage. Recently, this system has come under intense debate given the growing concentration of voting power among a few asset managers and disagreements over environmental and social issues. Major fund managers now o¤er their investors a choice: delegate their votes to the fund or cast votes themselves ("voting choice"). This paper develops a theory of delegation of voting rights and studies the implications of voting choice for investor welfare. If voting choice is o¤ered because investors have heterogeneous preferences, then investors may retain their voting rights excessively, ine¢ ciently prioritizing their private preferences over information. As a result, investors on aggregate are not always better o¤ if voting choice is o¤ered to them. In contrast, if voting choice is o¤ered to aggregate investors'heterogeneous information, then voting choice is generally e¢ cient, increasing investor welfare. However, if information collection is costly, voting choice may lead to coordination failure, resulting in less informed voting outcomes.

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Deadlock on the Board

Review of Financial Studies, Feb 5, 2020

We develop a dynamic model of board decision-making akin to dynamic voting models in the politica... more We develop a dynamic model of board decision-making akin to dynamic voting models in the political economy literature. We show a board could retain a policy all directors agree is worse than an available alternative. Thus, directors may retain a CEO they agree is bad-deadlocked boards lead to entrenched CEOs. We explore how to compose boards and appoint directors to mitigate deadlock. We find board diversity and long director tenure can exacerbate deadlock. We rationalize why CEOs and incumbent directors have power to appoint new directors: to avoid deadlock. Our model speaks to short-termism, staggered boards, and proxy access. (JEL G34, D72, D74)

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Corporate Governance Implications of the Growth in Indexing

SSRN Electronic Journal

Passively managed funds have grown to become some of the largest shareholders in publicly traded ... more Passively managed funds have grown to become some of the largest shareholders in publicly traded companies, but there is considerable debate about the effects of this growth on corporate governance. The goal of this paper is to review the literature on the governance implications of passive fund growth and discuss directions for future research. In particular, we present a framework to understand the incentives of passive and actively managed funds to engage in governance, review the empirical evidence in the context of this framework, and highlight the questions that remain unanswered.

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Information Flows, Organizational Structure, and Corporate Governance

SSRN Electronic Journal

This survey provides an overview of theoretical and empirical research on information flows in co... more This survey provides an overview of theoretical and empirical research on information flows in corporations. It highlights key frictions preventing effective information flows and discusses how organizational structure and corporate governance can alleviate these frictions, focusing on three broad topics: 1) organizational design, such as the choice between centralized and decentralized decision-making; 2) composition and decision-making process of the board of directors; and 3) communication among shareholders and between shareholders and management in the context of shareholder activism. The goal of the survey is to draw connections between theoretical and empirical work and point out directions for future research.

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The voting premium

Research Papers in Economics, 2021

Advising the Management: A Theory of Shareholder Engagement∗

We provide a model to study the e§ectiveness of shareholder engagement, i.e., shareholders commun... more We provide a model to study the e§ectiveness of shareholder engagement, i.e., shareholders communicating their views to management. Di§erences in preferences and beliefs between management and shareholders prevent e§ective engagement, and these frictions can be exacerbated by the firm’s ownership structure if many investors choose not to become shareholders. The growth in passive ownership can counteract these e§ects and improve shareholder engagement. Engagement decisions of shareholders are complements under di§erences in beliefs, but are substitutes if the manager’s and shareholders’ preferences are strongly misaligned. If di§erences in beliefs are substantial, some degree of preference misalignment can improve shareholder engagement.

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The labor market for directors and externalities in corporate governance, available at SSRN

This paper studies how directors'reputational concerns in the labor market a¤ect board struc... more This paper studies how directors'reputational concerns in the labor market a¤ect board structure, corporate governance, and …rm value. In our setting, directors a¤ect their …rms' governance, and governance, in turn, a¤ects …rms' demand for new directors. Whether the labor market rewards a shareholder-friendly or management-friendly reputation is endogenous and depends on aggregate governance. We show that directors' desire to be invited to other boards creates strategic complementarity of corporate governance across …rms. Directors' reputational concerns amplify the governance system: strong systems become stronger and weak become weaker. We derive implications for multiple directorships, transparency, shareholder activism, and board size.

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Online Appendix for “Trading and Shareholder Voting”

and hence, ∂Wc ∂τ > 0⇔ −qc > βc. Recall that the conservative equilibrium exists if and onl... more and hence, ∂Wc ∂τ > 0⇔ −qc > βc. Recall that the conservative equilibrium exists if and only if H (qc) < φ⇔ −qc < −H−1 (φ). Also notice that −qc (τ) spans [ −b, bc ] as a decreasing function of τ , and βc ∈ ( −b, bc ) . Therefore, there is a unique τ̂ c ∈ (0, 1) such that −qc (τ̂ c) = βc. Thus, if βc < −H−1 (φ) then τ c = τ̂ c, and if βc ≥ −H−1 (φ) then the closet marginal voter to βc that 28Wharton and ECGI. Email: dlevit@wharton.upenn.edu. 29Boston College, CEPR, and ECGI. Email: malenko@bc.edu 30University of Mannheim and ECGI. Email: maug@uni-mannheim.de 31We analyze the optimal threshold in a given equilibrium rather than across all equilibria, because when multiple equilibria exist, unless a selection is imposed, the optimal threshold is not well defined.

Nadya Malenko

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