Martin C Schmalz

Assistant Professor of Finance  |  Stephen M. Ross School of Business  |  University of Michigan  |  R5456  |  Ann Arbor, MI 48109-1234  |  734 763 0304  |

CV [pdf]

I am a financial economist with theoretical and empirical research interests.

  • My latest project at the intersection of industrial organization, finance, and corporate governance measures how common ownership of firms by super-sized asset managers affects product market competition.
  • Several projects in corporate and entrepreneurial finance examine the impact of labor relations, collateral constraints, macroeconomic conditions, and heterogeneous beliefs on financing, risk management, and entrepreneurial activity.
  • My papers in financial economics explain why Bayesian investors who are uncertain about the degree to which their assets are exposed to systematic risk learn more about the value of their assets in some market states than in others.
  • An agenda in behavioral finance and asset pricing investigates the role of horizon-dependent risk aversion in financial decision making, asset pricing, and belief formation.

News about my research appear on twitter.

Upcoming conference and seminar presentations:


"Housing Collateral and Entrepreneurship(with David Sraer and David Thesmar) provides evidence that collateral constraints restrict entrepreneurial activity. [The Journal of Finance, forthcoming.]

Book Chapter 

Farre-Mensa, J.Michaely, R., Schmalz, M., 2014. Payout Policy. In: Robert Jarrow (Ed.), Annual Review of Financial Economics.

Working Papers 

Industrial Organization, Finance, and Corporate Governance

Suppose you owned all firms in the same industry. Would you push them to compete extra hard with each other? No? Do you think real-world institutional investors, who hold stakes in all major firms in a given industry, do? (Here are some examples.) 

"Anti-Competitive Effects of Common Ownership(with José Azar and Isabel Tecu) shows that product market competition is reduced when diversified asset managers hold large stakes in natural competitors. Here is a note detailing a mechanism. Here is a paper on legal implications.

[Online Appendix] [Slides] [Webcast] [Next on the Searle Center Antitrust Economics and Competition Policy Conference] [Solicited and submitted]

Media coverageSlate, Financial Times (1/2), Digitopoly, BloombergView (1/2/3/4), Economist (1/2), FT Alphaville, Eric Posner, Equitable GrowthAmerican Bar Association, Atlantico (in French)WSJ Heard on the Street, Economist's View, Bloomberg Businessweek, Wirtschaftswoche (in German)ValueWalkWall Street Journal & WSJ Moneybeat, Handelsblatt, Quartz, Business Standard (India)

Corporate Finance

"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, conditionally accepted.] 

"Financing Payouts(with Joan Farre-Mensa and Roni Michaely) shows that a large fraction of dividends and repurchases are financed with simultaneous securities issuances. [R&R at the Journal of Financial Economics]

"Unionization, Cash, and Leverageuses a regression discontinuity to identify the causal effect of unionization on firms' financial policies.

"Optimal Security Design with Disagreement" (with Juan Ortner) predicts the optimality of debt, pooling, tranching, and convertibles, based on the assumption that issuers / entrepreneurs are more optimistic than their financiers.

Bayesian Learning in Financial Economics

"Revealing Downturns(with Sergey Zhuk) explains theoretically why investors learn more about firm value in bad times, and shows empirically that earnings response coefficients increase in downturns. Negatively skewed stock returns and conditional volatility are a direct consequence of Bayesian parameter learning. [Online Appendix[AFA 2015 Slides] [R&R (3rd round) at the Review of Financial Studies]

"Performance Measurement with Uncertain Risk Loadings(with Francesco Franzonishows that rational investors who are uncertain about the risk exposure of projects learn more about projects' value, and therefore reallocate more capital across projects, in times with moderate factor realizations, compared to times with more extreme factor realizations. The flow-performance relation in the mutual funds sector exhibits the predicted non-monotonic pattern. [AFA 2015 Slides] [On the Fall 2013 NBER Asset Pricing program. R&R at the Review of Financial Studies.] 

Behavioral Finance

"Up Close It Feels Dangerous: 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, derives asset pricing implications, and outlines institutional responses. [On the 2013 AFA program]

"Anxiety, Overconfidence, and Excessive Risk Taking(with Thomas Eisenbach) shows that dynamically inconsistent risk preferences, combined with a possibility to forget, imply overconfidence and excessive risk-taking. [Featured on Seeking Alpha]

Asset Pricing

"Asset Pricing with Horizon-dependent Risk Aversion(with Marianne Andries and Thomas Eisenbach) develops solution techniques for multi-period general equilibrium asset pricing models with dynamically inconsistent risk preferences. The model's predictions for the term structure of risk premia in equity markets and the market for volatility risk find support in the data. [On the Fall 2014 NBER Asset Pricing program]

"The Term Structure of the Price of Variance Risk(with Marianne AndriesThomas Eisenbach, and Yichuan Wang) estimates an option pricing model to show that the price of variance risk -- not only its quantity -- decreases with maturity. This finding helps distinguish between alternative asset pricing models.

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