2018 Best 40 Under 40 Professors: Martin Schmalz, Ross School of Business

Martin Schmalz

Assistant Professor in Business Administration, Assistant Professor of Finance

University of Michigan, Stephen M. Ross School of Business

Stellar research and excellent teaching make him a superb candidate for this list. That, according to one nomination submitted to Poets&Quants for Ross School of Business professor Martin Schmalz. Others backed up this claim as students, administrators, and other academics consistently called attention to this professor’s outstanding performance in the classroom coupled with his prowess in academia as a top researcher. On the classroom front, he consistently earns near perfect ratings from students and, as such, won a teaching excellence award in 2016 plus two additional teaching nominations. Students laude him for his energetic, lively discussions and the use of memorable visualizations to make dense course material become magically translucent. Says one former student, “I enjoyed his classes so much that I chose finance for my field. I used to be a research biologist, so the impact was dramatic.”

Research-wise, this young prof already has a well-known name throughout both academia and mainstream financial press. Most notably for his research that looks at the effect of common ownership of public firms on consumers. By his own account, he is an economist and finance professor passionate about making things more efficient. By one student’s account, he’s energetic and a smart dresser.

Age: 33

At current institution since what year? 2012

Education: (title of degree, area of study, institution and year obtained) PhD, Economics, Princeton University, 2012

List of courses you currently teach: Corporate Finance Theory (PhD), Valuation (MBA), Big Data in Finance (BBA)

Twitter handle: @martincschmalz

TELL US ABOUT YOUR LIFE AS A PROFESSOR

“I knew I wanted to be a business school professor when…” I got a taste of the excitement that comes with the discovery of unchartered intellectual territory.

What are you currently researching and what is the most significant discovery you’ve made from it?

Together with various coauthors, I spent most of the past few years piecing together the ownership structure of various firms and industries, and documenting the effects of these patterns on firms’ product market strategies.

What stands out is that in many developed economies, many competing firms are nowadays commonly owned by the same small set of institutional investors. Common ownership reduces incentives to compete, which can mean: higher consumer prices and lower economic output. Common ownership structures thus challenge a basic building block of any market-based economic system – and one that is necessary for the system to work well.

An example of a common owner is Softbank, which owns stakes in both Uber and its various competitors worldwide (Didi, Grab, Ola …). The acquisition of these “common ownership” stakes was in part motivated by Softbanks’ ability to affect the strategy of not only one firm, but also its competitors. Indeed, what happened is that Uber sold its operations in China to competitor Didi in exchange for a stake in Didi; a similar transaction just happened in South-East Asia with Grab. These deals are designed to reduce portfolio firms’ incentives to engage in price wars – in other words, they reduce competition. That’s great for shareholders, but probably not for consumers, and can adversely affect economic welfare. (Common ownership may also have welfare-enhancing effects, but those have yet to be shown.)

“If I weren’t a business school professor…” I would probably hate my job.

What do you think makes you stand out as a professor? I think I’m good at explaining things in simple terms.

“One word that describes my first time teaching” Exciting

If your teaching style/classroom experience had a theme song, what would it be? Jump!

As a b-school professor, what motivates you?

The research part: contributing to making the world a more efficient place.

The teaching part: enabling students to develop their human capital and thus advance in their careers.

“Here’s what I wish someone would’ve told me about being a business school professor” Some preparation for the non-academic parts of it would have been helpful – such as the politics, interactions with journalists, policy-makers etc.

Professor you most admire and why: I admire professors who in their research manage to “ask themselves only: what are the facts?” (following Bertrand Russell’s advice).

STUDENTS

What do you enjoy most about teaching business students? Seeing the big change from the beginning to the end of a course in students’ ability to structure a problem through the lense of financial decision makers.

What is most challenging? Balancing research, teaching, and family life.

Using just one word, describe your favorite type of student

– Inquisitive

Using just one word, describe your least favorite type of student

– Uninterested

What is the most impressive thing one of your students has done?

– Many have founded companies or had admirable careers in finance. But others impressed me by doing things that have nothing to do with finance at all. One put up a successful fight against sex trafficking in Bangladesh by helping affected women get jobs outside the trade, which allowed them to pay their “rent” to their “landlords” – and thus lifted them out of forced prostitution.

What is the least favorite thing one has done? Nothing comes to mind. (Was I just lucky, or is my job really that awesome?)

What does a student need to do to get an A in your class Simply be among the best of the class.

“When it comes to grading, I think students would describe me as …” Coldblooded, heartless, and not nearly as funny as I must have thought I was at the time I designed the exam and homework questions.

“But I would describe myself as …” Having way too much fun.

Fill in the blank: “If my students can ask themselves the right questions, then I’ve done my job as their professor.”

LIFE OUTSIDE THE CLASSROOM

Fun fact about yourself: I have a commercial pilot license.

What are your hobbies? I used to be a decent cross-country skier and pianist. Now I’m mainly trying to be a dedicated father and partner.

How will you spend your summer? I don’t know yet!

Favorite place to vacation: That’s hard! But sailing between the Hawaiian Islands on New Year’s Eve is certainly very high on the list!

Favorite book: Anything by Gogol.

What is your favorite movie and/or television show and what is it about the film or program that you enjoy so much? —

Favorite type of music and/or favorite artist: For reasons I don’t entirely understand, I’m really into Russian 20th century music.

Bucket list item #1: Combining sailing, kite-surfing, and ski-touring in the Arctic.

THOUGHTS OF REFLECTION

What professional achievement are you most proud of? Changing the way people think about corporate governance by institutional investors.

“If I had my way, the business school of the future would have much more of this…” Better incentives for professors to be great teachers.

“And much less of this…”

Politics.

In your opinion, companies and organizations today need to do a better job at doing what? Please explain.

I don’t have an answer that does justice to the generality of this question.

Looking ahead 10 years from now, describe what “success” would like for you? Seeing my work reflected in the way people think.

Students say…

“Martin’s energy, enthusiasm, and supportive ethos brought our difficult and dense cases to life and provided the structure to enable us to dive deep into the nuances of valuation. Our classes always served as a lively discussion forum for my fellow classmates to highlight their own experiences as well.”

“In one case that I won’t forget, he taught us how to visualize the value of an option compared to the value the asset by physically performing a left-handed “long putt” in class. In a long putt option, the value of the option goes up, as the value of the asset goes down, i.e. towards the left. He then tied putts and calls back to the value of equity and debt in a firm.”

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