Information Aggregation in Corporate Boards

Abstract

We study a model of information aggregation in corporate boards. A CEO polls shareholders to obtain information about a payoff relevant state variable and then finds a policy that affects the welfare of all the shareholders. Shareholders differ not only in their ideologies but also in interpretations. We show that the impact of poll size on information revelation is ambiguous in general. We identify a necessary and sufficient condition ensuring information aggregation in polls. We show each polled shareholder before learning her private signal would always gain benefit from increasing the poll size, while the margin of this gain gets smaller as the poll size increases. Importantly, after shareholders observe their signals, depending on the nature of heterogeneities, the poll size plays opposite roles in information aggregation. Particularly, we show when there is heterogeneity only in ideologies, information aggregation via truth-telling strategies is impossible in large polls. In sharp contrast, however, under presence of heterogeneity only in interpretations information aggregation is impossible in small polls.