Martin C Schmalz

NBD Bancorp Assistant Professor in Business Administration & Harry H. Jones Research Scholar & Assistant Professor

Finance Area | Stephen M. Ross School of Business | University of Michigan | R5456 | Ann Arbor, MI 48109-1234 | +1 734 763 0304 | schmalz@umich.edu | SSRN author page twitter | Looking for RAs with excellent python / pandas skills. Email me if interested.

CV [pdf]

I am a financial economist.

Various projects at the intersection of industrial organization, finance, and corporate governance investigate how the ownership structure of firms affects their strategic behavior.

Two papers on Bayesian learning examine how the speed of learning depends on the market state when investors are uncertain about the systematic-risk exposure of their assets.

A theoretical agenda in behavioral finance analyzes the role of horizon-dependent risk aversion in decision making, belief formation, and asset pricing.

Several projects in corporate finance examine the impact of labor relations, collateral constraints, macroeconomic conditions, and heterogeneous beliefs on financing, risk management, and entrepreneurial activity. My latest paper shows that even central banks are not immune from governance frictions, with likely consequences for monetary policy.


Published Journal Articles

  1. Anxiety in the Face of Risk (with Thomas Eisenbachdescribes the behavior of an agent that is more risk-averse for imminent than for distant risks. [Journal of Financial Economics, 121, 2016, pp. 414-426]

  2. Can Changes in the Cost of Carry Explain the Dynamics of Corporate Cash Holdings? (with José Azar and Jean-François Kagy) shows that changes in the costs of holding cash can explain secular trends in U.S. corporate cash holdings, as well as cross-country variation in the level of cash. 
    [Review of Financial Studies, 2016, doi:10.1093/rfs/hhw021]

  3. Housing Collateral and Entrepreneurship (with David Sraer and David Thesmar) shows that collateral constraints restrict entrepreneurial activity
    [The Journal of Finance, 72(1), 2017]

  4. Fund Flows and Market States (with Francesco Franzonidocuments that retail investors reallocate more capital to outperforming mutual funds when the market moves sideways, compared to times with more extreme factor realizations. A simple Bayesian learning model predicts the documented pattern. [Review of Financial Studies, 2017, doi:10.1093/rfs/hhx015]

Book Chapter

Working Papers

Central Banks

(Why) Do Central Banks Care About Their Profits? (with Igor Goncharov and Vasso Ioannidou) shows that central banks care about their profitability, especially when political pressure or career concerns are more pronounced. These findings have implications for the effectiveness and sustainability of non-traditional monetary policy. [Media Coverage]


Industrial Organization, Finance, and Corporate Governance

Common Ownership, Competition, and Top Management Incentives (with Miguel Antón, Florian Ederer, and Mireia Ginéshows that managers in more commonly owned industries have reduced incentives to compete. [Internet Appendix][On the Fall 2016 NBER Organizational Economics program.] [Media Coverage]

Ultimate Ownership and Bank Competition (with José Azar and Sahil Raina) Develops an index of ultimate ownership concentration and relates it to market-level prices of deposit banking products. [On the 2016 NBER SI IO program.] [Media Coverage]

Anti-Competitive Effects of Common Ownership (with José Azar and Isabel Tecu) shows that common ownership of natural competitors by diversified asset managers causes higher airline ticket prices. [R&R, The Journal of Finance] -- revised version online as of March 15, 2017 [Media Coverage]


Bayesian Learning and Behavioral Finance

Revealing Downturns (with Sergey Zhuk) shows that rational investors respond more to information in downturns than in upturns; Bayesian learning is sufficient to cause negatively skewed stock returns and conditional volatility. [Online Appendix] [R&R, Review of Financial Studies]

Anxiety, Overconfidence, and Excessive Risk Taking (with Thomas Eisenbach) provides an explanation why some people sometimes become overconfident and take excessive risks[Media Coverage]


Asset Pricing

Asset Pricing with Horizon-dependent Risk Aversion (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. [On the Fall 2014 NBER Asset Pricing and 2016 AFA program.]

The Term Structure of the Price of Variance Risk (with Marianne AndriesThomas Eisenbach, and Yichuan Wang) finds that the price of variance risk decreases with maturity, and thus helps distinguish between alternative asset pricing models.


Corporate Finance

Disagreement and Optimal Security Design (with Juan Ortner) proves that disagreement between issuers and market participants can make debt, pooling, tranching, and convertibles optimal. [On the AEA 2016 program]

Financing Payouts (with Joan Farre-Mensa and Roni Michaely) documents that a large fraction of dividends and repurchases are financed with simultaneous securities issuances. [Media Coverage]

Unionization, Cash, and Leverage uses a regression discontinuity design on unionization elections to identify the causal effect of unionization on firms' financial policies.