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 Work

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.


Working Papers

Club Deals in Leveraged Buyouts with Micah Officer and Berk Sensoy

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. We find that target shareholders receive roughly 10% less in club deals than in sole-sponsor LBOs. The results are concentrated before 2006, when club deals began to receive heightened media and government scrutiny. High institutional ownership in the target firm mitigates the club deal effect, suggesting that sophisticated institutional investors are able to bargain effectively with clubs. We find little to no 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. Overall, our findings are consistent with the view that club deals are detrimental to passive, dispersed shareholders of publicly-traded corporations, especially before 2006.

When Are Outside Directors Effective? with Ran Duchin and John Matsusaka

Abstract: New regulations and corporate governance activists have called for more outside directors on boards and committees, yet existing research has failed to find convincing evidence that outside directors improve firm performance. This paper estimates the effect of outside directors using a new empirical strategy that controls for the well known endogeneity problem in board composition by focusing on firms that were required to increase the number of outside directors as a result of new regulations. We find that the effect of outside directors on performance depends on their cost of acquiring information: outside directors are effective when the cost of acquiring information is low and are ineffective when the cost of acquiring information is high. 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

Abstract: We test a model of market segmentation in which the failure of investors to perfectly condition on past prices leads to return cross-predictability among assets with correlated fundamentals. Consistent with the model, we find that stocks that are in economically related supplier and customer industries cross-predict each other's returns. We also find strong support for the model's additional testable implications: (i) changes in analyst expectations similarly exhibit cross-predictability, (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 trading behavior of informed investors in the model. Overall, our findings support the hypothesis that due to specialization and market segmentation, value-relevant information diffuses gradually in financial markets.

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.

Evidence on the Dark Side of Internal Capital Markets with David Scharfstein

Abstract: This paper documents differences between the Q-sensitivity of investment of stand-alone firms and the unrelated segments of conglomerate firms. Unrelated segments not only exhibit lower Q-sensitivity of investment than stand-alone firms but also invest more (less) than their stand-alone counterparts in low-Q (high-Q) industries. This finding is robust to matching on industry, size, and age. The differences are more pronounced in conglomerates in which top management has small ownership stakes, suggesting that agency problems partly explain the investment behavior of conglomerates.

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.

Capital Rationing: Evidence from Diversified Oil Companies

Abstract: This paper presents evidence that is largely inconsistent with the view that the oil shock of 1986 systematically led diversified oil companies to materially reduce investment in their nonoil business segments. Specifically, I find that the reductions immediately following the oil shock do not correlate with standard measures of costly external finance in the cross-section. Moreover, the time-series evidence, provided in earlier research, is not robust. Evidence from a comprehensive dataset of U.S. petrochemical plants confirms the aforementioned findings. The failure to find strong signs of a capital rationing effect within diversified oil firms in the extreme context of the 1986 oil shock raises doubts about whether such effects are important on an ongoing basis for companies operating in more normal economic conditions. The findings are especially important since the 1986 oil shock constitutes the only exogenous experiment that the literature has provided so far in support of the capital rationing hypothesis.


Work in Progress

Integration and Investment in the Chemicals Industry

Managerial Extrapolation and Corporate Investment

Alpaslan Selvili Ozbas


Teaching Experience

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

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

Professional Membership
American Economic Association
American Finance Association
Western Finance Association


Referee Work

American Economic Review, Journal of Economic Behavior and Organization, Journal of Finance, Journal of Law, Economics and Organization, Rand Journal of Economics


References

Denis Gromb, London School of Business
Regent's Park, London, United Kingdom NW1 4SA
Phone: 44 (0) 20 7262 5050 ext. 3545, e-mail: dgromb@london.edu

Sendhil Mullainathan, Harvard University Economics Department
Littauer 208, Cambridge, MA 02138
Phone: (617) 496-2720, e-mail: mullain@fas.harvard.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