Martin C. Schmalz
On public service leave as Chief Economist and Director, Office of Economic and Risk Analysis,
Public Company Accounting Oversight Board
This website incl. links expresses views that are my own and do not necessarily reflect the view of the Board or other Board members or staff.
Professor of Finance, Economics, and Real Estate
Saïd Business School, University of Oxford, United Kingdom
Director: Future of Real Estate Initiative
Co-Director: AI in Fintech and Open Banking Program
Academic Director: Blockchain Strategy Program
CV - Google Scholar - Bio - Blog - @martincschmalz , @oxfordfrom - Disclosure
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 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 systematic memory lapses and belief distortions.
Thirdly, I study how the macroeconomic environment affects corporate financial decisions and 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, including the pricing of real estate.
I teach real estate, valuation, corporate finance, and AI to business, engineering, law, and executive students.
Education
PhD, Economics, Princeton University, USA (2012)
Dipl.-Ing., Mechanical Engineering, Universität Stuttgart, Germany (2003-2007)
Working Papers
Auditing and Audit Regulation
What can an audit regulator do to improve welfare? (with William Zame) analyzes audit regulation in equilibrium.
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.
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.
Asset Pricing
Do Index Funds Benefit Investors? (with William Zame) shows that, in equilibrium, investor welfare may decrease when index funds become more cheaply available.
Behavioral Finance
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. [Reject & resubmit, Management Science]
Corporate Finance and Security Design
Pooling and Tranching under Belief Disagreement (with Juan Ortner) shows how pooling and tranching interact. [Reject & resubmitted, Review of Finance]
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)
Anxiety in the Face of Risk, with Thomas Eisenbach, Journal of Financial Economics, 121(2), 2016, pp. 414-426.
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.
Housing Collateral and Entrepreneurship, with David Sraer & David Thesmar, Journal of Finance, 72(1), 2017, pp. 99-132. Brattle Group Distinguished Paper Prize.
Shows that collateral constraints restrict entrepreneurial activity.
Fund Flows and Market States, with Francesco Franzoni, Review of Financial Studies, 30(8), 2017, pp. 2621-2673.
Bayesian investors reallocate more capital to outperforming mutual funds when the market moves sideways, compared to times with more extreme factor realizations.
Anticompetitive Effects of Common Ownership, with José Azar and Isabel Tecu, Journal of Finance, 73(4), 2018, pp. 1513-1565. Internet Appendix. Replication Package.
Provides evidence that joint ownership of natural competitors causes higher consumer prices.
Revealing Downturns, with Sergey Zhuk, Review of Financial Studies, 32(1), 2019, pp. 338-373.
Bayesian learning about asset's risk loadings implies negatively skewed stock returns and conditional volatility.
(Why) Do Central Banks Care About Their Profits? with Igor Goncharov and Vasso Ioannidou, Journal of Finance, 78(5), 2023, pp. 2991-3045.
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.
Financing Payouts with Joan Farre-Mensa and Roni Michaely, Journal of Financial and Quantitative Analysis, forthcoming.
Documents that a large fraction of dividends and repurchases are financed with simultaneous securities issuances.
Innovation: The Bright Side of Common Ownership? with Miguel Antón, Florian Ederer, and Mireia Giné, Management Science, forthcoming.
Shows that common ownership can increase innovation when technological spillovers are strong relative to product market spillovers.
Horizon-dependent Risk Aversion and the Timing and Pricing of Uncertainty (with Marianne Andries and Thomas Eisenbach), Review of Financial Studies, forthcoming.
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.
The Term Structure of the Price of Variance Risk (with Marianne Andries, Thomas Eisenbach, and Yichuan Wang), Review of Finance, conditionally accepted.
Finds that the price of variance risk decreases with maturity, and thus helps distinguish between alternative asset pricing models.
Book Chapters and Chapters in Edited Volumes (selection)
Payout Policy, with Joan Farre-Mensa & Roni Michaely, reviews the literature on corporate payouts. [In: Robert Jarrow (Ed.), Annual Review of Financial Economics, Vol. 6, 2014]
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.