Curriculum Vitae (pdf)

Education

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

Abstract: 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

Abstract: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

Abstract: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, Forthcoming

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.


Working Papers

Information Acquisition, Resource Allocation and Managerial Incentives with Heikki Rantakari
Abstract: A manager's incentives to acquire information about different investment alternatives and then to choose how to allocate resources among them are jointly influenced by his compensation contract and the level of resources allocated to him. We show how the level of resources can be used, over and above the manager's monetary compensation, as an instrument to induce additional information acquisition and may thus be set above or below the first-best level. Second, we show how the optimal compensation contract induces overconfidence, in the sense that the manager will choose a resource allocation that is more aggressive than the allocation that would maximize expected return. Finally, we show how the choice of the level of resources can be delegated to the manager without any loss in efficiency through appropriately tying managerial compensation to the level of resources requested (thus highlighting the risk of analyzing capital allocations in isolation from compensation), while induced overconfidence remains an unavoidable consequence of efficiently motivating information acquisition.

Managerial Accommodation, Proxy Access, and the Cost of Shareholder Empowerment with John Matsusaka

Abstract: This paper develops a theory of corporate decision making to study the benefits and costs of shareholder empowerment. We show how permitting shareholders to propose directors or policies can cause value-maximizing managers to take value-reducing actions to accommodate activist investors with non-value-maximizing goals. The model identifies an important distinction between the right to approve and the right to propose. The right to approve is weak though always beneficial; the right to propose is impactful but can help as well as hurt shareholders. We identify implications for current policy discussions concerning director elections, proxy access, bylaw amendments, and shareholder voting.

Disclosure of Status in an Agency Setting with Anthony Marino

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.

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

Abstract: 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

Integration and Investment in the Chemicals Industry (previously capital rationing within diversified oil companies)

Managerial Extrapolation and Corporate Investment

Alpaslan Selvili Ozbas

Yavuz Selvili Ozbas


Teaching Experience

Professor, USC Marshall School of Business
PhD Course in Corporate Finance, Fall 2007 - present
MBA and Undergraduate Elective Case Course in Corporate Financial Strategy, Fall 2002 - present

Teaching Assistant, MIT Sloan School of Management
MBA Core Course in Corporate Finance, Prof. David Scharfstein, Spring 2001

Teaching Assistant, MIT Sloan School of Management
MBA Core Course in Corporate Finance, Prof. Denis Gromb, Fall 2000

Instructor, Carnegie Mellon University GSIA (received Best Student-Teacher Award)
Introduction to Financial Derivatives (Undergraduate Course), Spring 1995

Teaching Assistant, Carnegie Mellon University GSIA
MBA Core Course in Corporate Finance, Prof. Ronen Israel, Fall 1994


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

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 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)

Program Committee
Western Finance Association (2010, 2011, 2012, 2013)
European Finance Association (2011, 2012, 2013)
Financial Management Association (Napa 2012, 2013, Europe 2012)
Society for Financial Studies Finance Cavalcade (2011)
Financial Economics and Accounting Conference (2004, 2012)

Discussions
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)
China International Conference in Finance Shanghai (July 2013), Session Chair

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


Referee Work

American Economic Review, Economic Inquiry, 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 Law, Economics and Organization, Management Science, Quarterly Journal of Economics, RAND Journal of Economics, Review of Finance, Review of Financial Studies


Dissertation Committees

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
Recruiting Committee (2003-present), Doctoral Qualifying Exam Committee (2003-present), Doctoral Admissions Committee (2003-2011), Finance Seminar Series Organizer (2003-2006)


References

Denis Gromb, INSEAD
Boulevard de Constance, Fontainebleau 77305, France
Phone: 33 (0)1 60 72 91 25, e-mail: denis.gromb@insead.edu

David Scharfstein, Harvard Business School
Baker Library 239, Boston, MA 02163
Phone: (617) 496-5067, e-mail: dscharfstein@hbs.edu

Antoinette Schoar, MIT Sloan School of Management
50 Memorial Drive, E52-433, Cambridge, MA 02142
Phone: (617) 253-3763, e-mail: aschoar@mit.edu