Oguzhan Ozbas

Associate Professor of Finance

University of Southern California
Marshall School of Business

Contact Information

701 Exposition Blvd
Hoffman Hall 231
Los Angeles, CA 90089-1422
Telephone: (213) 740-0781
Fax: (213) 740-6650
E-mail: ozbas@usc.edu

Curriculum Vitae (pdf)


Ph.D., Financial Economics
Massachusetts Institute of Technology, Sloan School of Management, 1998-2002
Dissertation: “Integration and Corporate Investment”
Committee: Sendhil Mullainathan, David Scharfstein (Chair), Antoinette Schoar

M.S., Industrial Administration
Carnegie Mellon University, Graduate School of Industrial Administration, 1993-1995

B.S., Industrial Engineering
Bogazici University, Faculty of Engineering, 1989-1993

Research Interests

Corporate Finance, Corporate Investment, Internal Capital Markets, Economic Theory of Organizations, Law and Finance

Published Papers

Integration, Organizational Processes, and Allocation of Resources
Journal of Financial Economics, January 2005

Abstract: Does the level of integration of a firm affect the quality of information available to its top decision makers responsible for allocating resources? Motivated by the pervasiveness of specific knowledge in large multi-division firms, I develop a model of internal competition for corporate resources among specialist managers and show that: (i) managers of integrated firms exaggerate the payoffs of their projects to obtain resources despite potentially adverse career consequences, and (ii) the exaggeration problem worsens with increased integration and reduces the allocative efficiency of an integrated firm. Control rights based on asset ownership enable the firm to set "the rules of the game" and improve managerial behavior through organizational processes such as rigid capital budgets, job rotation, centralization and hierarchies.

Evidence on the Dark Side of Internal Capital Markets with David Scharfstein
Review of Financial Studies, February 2010

Abstract: This paper documents differences between the Q-sensitivity of investment of stand-alone firms and unrelated segments of conglomerate firms. Unrelated segments exhibit lower Q-sensitivity of investment than stand-alone firms. This fact is driven by unrelated segments of conglomerate firms that tend to invest less than stand-alone firms in high-Q industries. This finding is robust to matching on industry, year, size, age and profitability. The differences are more pronounced in conglomerates in which top management has small ownership stakes, suggesting that agency problems explain the investment behavior of conglomerates.

When Are Outside Directors Effective? with Ran Duchin and John Matsusaka
Journal of Financial Economics, May 2010

This paper uses recent regulations that have required some companies to increase the number of outside directors on their boards to generate estimates of the effect of board independence on performance that are largely free from endogeneity problems. Our main finding is that the effectiveness of outside directors depends on the cost of acquiring information about the firm: when the cost of acquiring information is low, performance increases when outsiders are added to the board, and when the cost of information is high, performance worsens when outsiders are added to the board. The estimates provide some of the cleanest estimates to date that board independence matters, and the finding that board effectiveness depends on information cost supports a nascent theoretical literature emphasizing information asymmetry. We also find that firms compose their boards as if they understand that outsider effectiveness varies with information costs.

Market Segmentation and Cross-Predictability of Returns with Lior Menzly
Journal of Finance, August 2010

We present evidence supporting the hypothesis that due to investor specialization and market segmentation, value-relevant information diffuses gradually in financial markets. Using the stock market as our setting, we find that (i) stocks that are in economically related supplier and customer industries cross-predict each other's returns, (ii) the magnitude of return cross-predictability declines with the number of informed investors in the market as proxied by the level of analyst coverage and institutional ownership, and (iii) changes in the stock holdings of institutional investors mirror the model trading behavior of informed investors.

Costly External Finance, Corporate Investment, and the Subprime Mortgage Credit Crisis with R. Duchin and B. Sensoy
Journal of Financial Economics, September 2010

Abstract: We study the effect of the recent financial crisis on corporate investment. The crisis represents an unexplored negative shock to the supply of external finance for non-financial firms. Corporate investment declines significantly following the onset of the crisis, controlling for firm fixed effects and time-varying measures of investment opportunities. Consistent with a causal effect of a supply shock, the decline is greatest for firms that have low cash reserves or high net short-term debt, are financially constrained, or operate in industries dependent on external finance. To address endogeneity concerns, we measure firms’ financial positions as much as four years prior to the crisis, and confirm that similar results do not follow placebo crises in the summers of 2003–2006. Nor do similar results follow the negative demand shock caused by September 11, 2001. The effects weaken considerably beginning in the third quarter of 2008, when the demand-side effects of the crisis became apparent. Additional analysis suggests an important precautionary savings motive for seemingly excess cash that is generally overlooked in the literature.

Club Deals in Leveraged Buyouts with Micah Officer and Berk Sensoy
Journal of Financial Economics, November 2010

We analyze the pricing and characteristics of club deal leveraged buyouts (LBOs) – those in which two or more private equity partnerships jointly conduct an LBO. Using a comprehensive sample of completed LBOs of U.S. publicly traded targets conducted by prominent private equity firms, we find that target shareholders receive approximately 10% less of pre-bid firm equity value, or roughly 40% lower premiums, in club deals compared to sole-sponsored LBOs. This result is concentrated before 2006 and in target firms with low institutional ownership. These results are robust to controls for target and deal characteristics, including size, Q, measures of risk, and time and industry fixed effects. We find little support for benign motivations for club deals based on capital constraints, diversification motives, or the ability of clubs to obtain favorable debt amounts or prices, but it is possible that the lower pricing of club deals is an inadvertent byproduct of an unobserved benign motivation for club formation.

Corporate Diversification and the Cost of Capital
with Rebecca Hann and Maria Ogneva
Journal of Finance, October 2013

Abstract: We examine whether organizational form matters for a firm's cost of capital. Contrary to conventional view, we argue that coinsurance among a firm's business units can reduce systematic risk through the avoidance of countercyclical deadweight costs. We find that diversified firms have on average a lower cost of capital than comparable portfolios of standalone firms. In addition, diversified firms with less correlated segment cash flows have a lower cost of capital, consistent with a coinsurance effect. Holding cash flows constant, our estimates imply an average value gain of approximately 5% when moving from the highest to the lowest cash flow correlation quintile.

Disclosure of Status in an Agency Setting with Anthony Marino
Journal of Economic Behavior and Organization, September 2014

Abstract: We develop a model in which the principal and the agent share private information about the value of the agent for a multi-agent organization. The principal can disclose private information and make public the relative standing or status of all agents in the organization. We study whether it is better in terms of profit and utility to disclose or to not disclose status to the group of agents. Conditions for the optimality of disclosure versus non-disclosure are characterized for the cases of exogenous and endogenous human capital.

A Theory of Shareholder Approval and Proposal Rights with John Matsusaka
Journal of Law, Economics, and Organization, Forthcoming

Abstract: This paper develops a theory of how giving shareholders the right to approve and propose policies or directors affects firm value. The model highlights the distinction between the right to approve and the right to propose. The right to approve is weak; the right to propose is impactful but can help as well as hurt shareholders. Managers have an incentive to deter proposals from activist shareholders by adjusting corporate policy; one might conjecture that external pressure leads them to choose policies more appealing to other shareholders in order to reduce the electoral prospects of activist proposals. However, we show that when deterrence occurs, it is always by moving policy toward the position favored by the activist, even if this reduces shareholder wealth. Our analysis stresses the central role of voting uncertainty in determining the value consequences of shareholder rights and proxy access.

Working Papers

Why Do Managers Fight Shareholder Proposals? Evidence from No-Action Letter Decisions with John Matsusaka and Irene Yi

Harvard Law School Forum on Corporate Governance and Financial Regulation

Abstract: Corporate managers are highly skeptical of shareholder proposals, and often seek to prevent them from coming to a vote. Managers argue that proposals are uninformed or opportunistic, and will destroy firm value. In contrast, governance reformers argue that shareholder proposals are needed to counteract managerial agency problems, and can be used to increase firm value. This study estimates the value consequences of shareholder proposals challenged by managers, using announcement returns from SEC no-action letter decisions. Previous studies have not found a significant market reaction to shareholder proposals, but those studies have been limited by an inability to identify the date at which investors become aware of a proposal. Our new approach is to study a well-defined event date at which the SEC makes an exogenous and arguably unpredictable decision to block or allow a proposal to go forward, allowing estimates that can be interpreted as causal. We find that over the period 2007-2016, the value consequences of shareholder proposals – implied from abnormal returns around SEC no-action letter decision dates – are negative on average, suggesting that investors agree with managers that these proposals are value-destroying. The market's assessment varies across most proposal topics, and investors appear to dislike proposals that would increase the E-Index. Investors are not particularly skeptical of proposals by unions and public pensions, but appear to view proposals by individual "gadfly" shareholders as value-destroying.

Opportunistic Proposals by Union Shareholders with John Matsusaka and Irene Yi

Columbia Law School Blue Sky Blog

Abstract: Shareholder proposals, changes to company policies proposed and voted on by shareholders, are an increasingly important tool for corporate reformers, but also a subject of considerable legal and scholarly controversy. Some observers are concerned that proposals may be used "opportunistically" as bargaining chips by special interest shareholders to extract side payments from management; others argue that the benefits of opportunism are too low and the legal constraints are too tight for opportunistic proposals to occur. This paper examines whether labor unions use proposals opportunistically to influence contract negotiations. Our empirical strategy relies on the observation that proposals have a higher than normal bargaining chip value in contract expiration years, when a new contract must be negotiated. We find that during contract expiration years, unions increase their proposal rate by one-quarter (and double the rate during contentious negotiations); nonunion shareholders do not increase their proposal rate in expiration years. Unions are much more likely than other shareholders to make proposals concerning executive compensation, especially during expiration years. Opportunistic union proposals are associated with better wage outcomes for union workers. Union proposals primarily originate from their general funds, not the larger Taft-Hartley pension funds, which have legal barriers to activism.

The Economic Impact of Religion: Evidence from Ramadan Loans with Cem Demiroglu, Rui Silva, and Mehmet Fatih Ulu

Abstract: We examine the effect of religious behavior on decision-making in the context of Ramadan observance, using an administrative data set of all personal and business bank loans in Turkey during 2003-2013. We find that small business loans originated during Ramadan are about 10 to 15 percent more likely to become delinquent within two years of origination than loans originated outside of Ramadan. Despite their worse performance, Ramadan loans have lower credit spreads than non-Ramadan loans at origination. Consistent with Ramadan-induced judgment errors of loan officers, we find no relation between origination in Ramadan and the performance of personal loans which are mostly automated, and large business loans where approval decisions are made by credit committees. Loans granted by banks whose loan officers are more likely to observe the Ramadan perform worse, and so do loans originated on hot Ramadan days when adverse physiological effects of fasting are greatest, and loans that resemble charitable lending involving financially weak borrowers and financially strong lenders.

Executive Compensation and Deployment of Corporate Resources: Evidence from Working Capital with Nihat Aktas, Ettore Croci and Dimitris Petmezas

Abstract: Firms provide compensation incentives to executives, primarily in the form of bonus payments, to alleviate slack in the deployment of corporate resources to working capital. Financially constrained firms are heavy users of working capital incentives. So are firms that are less exposed to external takeover threats. Among the different components of working capital, inventories and payables are the main drivers of executive bonuses. Overall, our evidence supports the optimal contracting view of bonus payments in executive compensation.

Information Acquisition, Resource Allocation and Managerial Incentives with Heikki Rantakari

Abstract: A manager's compensation contract and the level of resources available to him jointly influence his incentives to acquire information about different investment alternatives as well as his resource allocate decisions. We show that the optimal compensation contract induces investment allocations that are more aggressive than the first-best allocation conditional on available information. The optimal level of resources may be set above or below the first-best level, depending on whether desired total investment increases or decreases with information. Both types of equilibrium investment distortions motivate information acquisition by the manager. Finally, we show that choice of the level of resources can be delegated to the manager without any loss in efficiency through appropriately linking managerial compensation to the level of resources requested.

Corporate Fraud and Real Investment

Abstract: This paper studies the real investment and financing behavior of firms around the period of fraud identified in SEC Accounting and Auditing Enforcement Releases. In the pre-fraud period, the typical fraudulent firm has a higher valuation, invests more and exhibits higher Q-sensitivity of investment than industry peers. The fraud period, by contrast, is characterized by significant drops in valuation and investment. I find no support for the hypothesis that fraudulent firms waste real resources by overinvesting during periods of fraud to signal value. Fraud appears to be an attempt to cover up bad investments made in response to the market's high valuation in the pre-fraud period.

Organizational Scope and Allocation of Resources: Evidence on Rigid Capital Budgets with Zekiye Selvili

Abstract: This paper compares the investment behavior of multi-segment firms (firms with multiple business units) with that of single-segment firms. Models that omit within-firm information and incentive problems predict both set of firms to invest in response to investment opportunities. Our main findings reject this null. In particular, multi-segment firms exhibit a tendency to maintain a fixed level of capital in their business units regardless of investment opportunities. In addition to exhibiting rigid investment behavior, multi-segment firms are also less responsive to investment opportunities than single-segment firms. These effects are especially strong in multi-segment firms with unrelated business units. Our findings support the existence of agency problems within multi-segment firms.

Cross-Industry Momentum with Lior Menzly

This paper documents a strong cross-momentum effect among industries that are related to each other along the supply chain. Specifically, trading strategies that buy and sell industries based on respectively high and low past returns in related upstream and downstream industries yield significant profits. Cross-industry momentum is distinct from previously documented stock- and industry-level momentum, and other known return factors.

Work in Progress

Efficiency of Internal Capital Markets and Antitakeover Laws

Pricing of Brand Value

Alpaslan Selvili Ozbas

Yavuz Selvili Ozbas

Teaching Experience

Professor, USC Marshall School of Business
PhD Course in Corporate Finance
MBA Core Course in Corporate Finance

MBA and Undergraduate Elective Case Course in Corporate Financial Strategy

Work Experience

Ford Motor Company, Dearborn MI, 1995-1998
Treasury Associate, Treasurer's Office

Finansbank, Istanbul, Turkey, June-August 1994
Foreign Exchange Trader

Bank of Industrial Investment & Credit, Istanbul, Turkey, June-September 1992
Project Finance Analyst

Fellowships and Honors

Review of Financial Studies Distinguished Referee Award, 2013
Walter A. Rosenblith Fellow, Massachusetts Institute of Technology, 1998-2002
Elliott Dunlap Smith Award, Carnegie Mellon University, 1995
Outstanding Academic Achievement Award, Carnegie Mellon University, 1995
Best Student-Teacher Award, Carnegie Mellon University, 1995
Beta Gamma Sigma, Carnegie Mellon University, 1995
Henry Ford II Scholar, Ford Motor Company, 1994
National Scholar of the Turkish Education Foundation, 1993-1995
TOBB Scholar of the Union of Commodity Exchanges of Turkey, 1989-1993

Professional Activities

Invited Presentations

Harvard Business School (January 2002)
University of Illinois at Urbana-Champaign (January 2002)
University of Minnesota (January 2002)
University of Southern California (January 2002)
University of Michigan (February 2002)
University of Texas, Austin (February 2002)
NBER Organizational Economics Conference (December 2003)
Koç University (December 2003)
AFA Annual Meetings San Diego (January 2004)
University of California, Los Angeles (October 2004)
AFA Annual Meetings Philadelphia (January 2005)
FMA Annual Meetings Chicago (October 2005)
Bilkent University (June 2007)
NBER Summer Institute Corporate Finance (July 2007)
Michigan State University (December 2007)
UCI-UCLA-USC Finance Day (April 2008)
University of Washington (June 2008)
Arizona State University (September 2008)
EFA Annual Meetings Bergen Norway (August 2009)
AEA Annual Meetings Atlanta (January 2010)
Napa Conference on Financial Markets Research (May 2010)
Sabancı University (May 2010)
Koç Finance Conference (May 2010)
University of New South Wales (October 2010)
Chinese University of Hong Kong (October 2010)
University of Hong Kong (October 2010)

Hong Kong University of Science & Technology (October 2010)
Financial Economics and Accounting Conference (November 2010)
Purdue University (November 2010)
AFA Annual Meetings Denver (January 2011)
ECCCS International Workshop (March 2012)
Finance UC 2nd International Conference (June 2012)
Olin Corporate Finance Conference (November 2012)

AFA Annual Meetings San Diego (January 2013)
NBER Law and Economics Program (March 2013)
University of California, San Diego (March 2013)
University of Amsterdam (March 2013)
Ohio State University (March 2013)
Tsinghua Finance Workshop (June 2013)
China International Conference in Finance Shanghai (July 2013)
EFA Annual Meetings Cambridge UK (August 2013)

Borsa Istanbul Finance and Economics Conference (September 2013)
AFA Annual Meetings Philadelphia (January 2014)
London School of Economics (March 2014)
Norwegian School of Economics (September 2014)
Bilkent University (November 2014)
WHU Otto Beisheim School of Management (December 2014)
University of Cologne (December 2014)
Kadir Has University (December 2014)
Özyeğin University (May 2015)
Sabancı University (June 2015)
Workshop on Corporate Governance and Investment at Sabancı University (September 2016)
Conference on Empirical Legal Studies at Duke University (November 2016)
AFA Annual Meetings Chicago (January 2017)
UC Riverside (February 2017)
Tinbergen Institute (March 2017)
HEC Paris (March 2017)
Purdue University (March 2017)
BI Norwegian Business School (May 2017)

Program Committee
Western Finance Association (2010-present)
European Finance Association (2011-present)
Financial Management Association (Napa 2012-present, Europe 2012, USA 2015 Track Chair)
Society for Financial Studies Finance Cavalcade (2011)
China International Conference in Finance (2013)
Financial Economics and Accounting Conference (2004, 2012)
Olin Conference on Corporate Finance (2013-present)

Financial Economics and Accounting Conference (November 2004)
Utah Winter Business Economics Conference (March 2006)
AFA Annual Meetings Chicago (January 2007)
AFA Annual Meetings New Orleans (January 2008), Session Chair
Conference on Empirical Legal Studies Los Angeles (November 2009)
Michigan Mitsui Finance Symposium (May 2010)
WFA Annual Meetings Victoria (June 2010)
AFA Annual Meetings Denver (January 2011)
AFA Annual Meetings San Diego (January 2013)
SFS Finance Cavalcade Miami (May 2013)
Tsinghua Finance Workshop (June 2013)
China International Conference in Finance Shanghai (July 2013), Session Chair
WFA Annual Meeting Seattle (June 2015)
SFS Finance Cavalcade Toronto (May 2016), Session Chair
FIRS Conference Lisbon (June 2016)
FMA European Doctoral Student Consortium Helsinki (2016)
Workshop on Corporate Governance and Investment (2016)
SFS Finance Cavalcade Nashville (2017), Session Chair

Professional Membership
American Economic Association
American Finance Association
Society for Financial Studies
Western Finance Association

Referee Work

American Economic Review, Economic Inquiry, Emerging Markets Finance and Trade, Journal of Accounting and Economics, Journal of Economic Behavior and Organization, Journal of Economics and Management Strategy, Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Journal of Financial Intermediation, Journal of Law, Economics and Organization, Journal of Law, Finance and Accounting, Management Science, Quarterly Journal of Economics, RAND Journal of Economics, Review of Finance, Review of Financial Studies

Dissertation Committees

Sakya Sarkar (Tulane University, 2015), Chao Zhuang (First Quadrant, 2014), Haitao Mo (Louisiana State University, 2013), Derek Horstmeyer (George Mason, 2012), Joshua Shemesh (University of Melbourne, 2011), Salvatore Miglietta (BI Norwegian School of Management, 2010), Breno Schmidt (Emory University, 2009), Ran Duchin (University of Michigan, 2008), Qing Ma (Cornell University, 2006)

Other Service

Doctoral Program Committee, Recruiting Committee (Current)

Committee on Research and Faculty Recognition, Graduate Curriculum Committee, Doctoral Qualifying Exam Committee, Doctoral Admissions Committee, Finance Seminar Series Organizer (Past)


Denis Gromb, HEC Paris
1 rue de la Libération 78350 Jouy-en-Josas, France
E-mail: gromb@hec.fr

David Scharfstein, Harvard Business School
Baker Library 239, Boston, MA 02163
E-mail: dscharfstein@hbs.edu

Antoinette Schoar, MIT Sloan School of Management
100 Main Street, E62-638, Cambridge, MA 02142
E-mail: aschoar@mit.edu