Martin C. Schmalz
Professor of Finance and Economics
Saïd Business School, University of Oxford, United Kingdom
On public service leave as Chief Economist and Director, Office of Economic and Risk Analysis
Public Company Accounting Oversight Board
Director: Future of Real Estate Initiative
Co-Director: AI in Fintech and Open Banking Program
Academic Director: Blockchain Strategy Program
I study strategic interactions between shareholders; between firms and financiers; between shareholders and managers; between competing firms; and between managers, auditors, and regulators.
I also study games people play with their future selves, and specifically how the fear of the unknown causes them to deviate from long-term plans. One natural response is costly delegation to unskilled agents. Another consequence is self-deception, which manifests in memory lapses and otherwise puzzling belief distortions.
A third strand of research examines how the macroeconomic environment affects corporate financial decisions and rational agents' ability to learn from fundamentals.
My papers apply these ideas to a broad set of topics in corporate governance and corporate finance (liquidity management, financing, investment, executive compensation), industrial organization and antitrust economics, asset management, executive compensation, security design, and asset pricing.
I teach real estate, valuation, corporate finance, and AI to business, engineering, law, and executive students.
I consult with UHNWI and family offices on asset allocation and succession planning.
PhD, Economics, Princeton University, USA (2012)
Dipl.-Ing., Mechanical Engineering, Universität Stuttgart, Germany (2003-2007)
Common Ownership, Firm Behavior, and Market Outcomes
Do Corporations Maximize Their Own Value?" (with Jin Xie) shows that firms will take value-destroying decisions when doing so benefits their largest shareholders due to these shareholders' holdings in rival firms.
A Refutation of ``Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry" (with José Azar and Isabel Tecu) shows that the main empirical claim in DGS is factually incorrect. Correctly accounting for the endogeneity of market shares shows the original "airlines paper" understimated the panel correlation between common ownership and product prices.
Mavericks, Universal, and Common Owners - The Largest Shareholders of US Public Firms (with Amir Amel-Zadeh and Fiona Kasperk) shows that accounting for blockholders' and insiders' holdings is necessary to reach the qualitatively correct conclusions about the drivers and consequences of common ownership in America.
Innovation: The Bright Side of Common Ownership? (with Miguel Antón, Florian Ederer, and Mireia Giné) shows that common ownership increases innovation when technological spillovers are strong relative to product market spillovers. [R&R, Management Science]
Diversification vs. Monopolization: A Laboratory Experiment (with Jonas Frey and Axel Ockenfels) shows experimental "shareholders" adjust manager compensation in accordance with their endogenously chosen portfolios, with the result of lessening competition.
Index Funds, Asset Prices, and the Welfare of Investors (with William Zame) shows that, in equilibrium, investor welfare may decrease when index funds become more cheaply available.
Horizon-dependent Risk Aversion and the Timing and Pricing of Uncertainty (with Marianne Andries and Thomas Eisenbach) reconciles long-run risk models with a downward-sloping term structure of risk prices without requiring a preference for the early or late resolution of uncertainty. [Fall 2014 NBER AP] [R&R, Review of Financial Studies]
The Term Structure of the Price of Variance Risk (with Marianne Andries, Thomas Eisenbach, and Yichuan Wang) finds that the price of variance risk decreases with maturity, and thus helps distinguish between alternative asset pricing models.
Anxiety and Pro-Cyclical Risk Taking with Bayesian Agents (with Thomas Eisenbach) provides an explanation why some people sometimes become overconfident and take excessive risks.
Corporate Finance and Security Design
Unionization, Cash, and Leverage uses a regression discontinuity design on unionization elections to identify the causal effect of unionization on firms' financial policies.
Peer-Reviewed Publications (selection)
Describes the behavior of an agent that is more risk-averse for imminent than for distant risks.
Can Changes in the Cost of Carry Explain the Dynamics of Corporate Cash Holdings? (w/ Azar & J-F Kagy), Review of Financial Studies, 29(8), 2016, pp. 2194-2240.
Explores whether monetary conditions can explain corporate liquid asset holdings in the U.S. and abroad.
Shows that collateral constraints restrict entrepreneurial activity.
Bayesian investors reallocate more capital to outperforming mutual funds when the market moves sideways, compared to times with more extreme factor realizations.
Provides evidence that joint ownership of natural competitors causes higher consumer prices.
Bayesian learning about asset's risk loadings implies negatively skewed stock returns and conditional volatility.
Shows that central banks care about their profitability, especially when political pressure or career concerns are more pronounced.
Common Ownership, Competition, and Top Management Incentives with Miguel Antón, Florian Ederer, and Mireia Giné, Journal of Political Economy, 131(5), May 2023.
Shows that managers of more commonly owned firms have reduced incentives to maximize their own firms' value.
Documents that a large fraction of dividends and repurchases are financed with simultaneous securities issuances.
Book Chapters and Chapters in Edited Volumes (selection)
Common-Ownership Concentration and Corporate Conduct reviews the literature on common ownership concentration, firm behavior, and equilibrium outcomes. [In: Patrick Bolton (Ed.), Annual Review of Financial Economics, Vol. 10, 2018]
Recent Studies on Common Ownership, Firm Behavior, and Market Outcomes reviews the fast-growing literature since 2018. Antitrust Bulletin 66 (1), 2021.
Research on the Competitive Consequences of Common Ownership: A Methodological Critique, with José Azar & Isabel Tecu, offers a critical assessment of methods used to estimate causal effects of common ownership in the recent literature. Antitrust Bulletin 66 (1), 2021.
Conceptual Breakthroughs on Common Ownership and Competition: A Framework For Evaluating Policy, describes conceptual breakthroughs and evaluates existing policy proposals within a new framework. Cambridge University Press, Corradi & Nowag (Eds), forthcoming.
Delegated Philantropy in Mutual Fund Votes on Climate Change, with Marie Brière, Sébastien Pouget, and Loredana Ureche-Rangau, documents that mutual fund families with a greater fraction of ``socially responsible'' funds are more supportive of ESG proposals. ITSE/Wiley, Jurczenko (Ed.), forthcoming.