Marcus Matthias Opp - Haas School of Business - University of California, Berkeley

Marcus M. Opp, Ph.D.

Assistant Professor

Finance Group
UC Berkeley
Haas School of Business

mopp(ät)haas.berkeley.edu

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research interests:

corporate finance, information economics, international finance, trade theory

publications:

“Expropriation risk and technology”, 2012, Journal of Financial Economics, 103 (1), 113-129.

"Tariff wars in a Ricardian model with a continuum of goods", 2010, Journal of International Economics, 80 (2), 212-225.

"Rybczynski's theorem in the Heckscher-Ohlin world - anything goes", 2009, joint with Hugo Sonnenschein and Christis Tombazos, Journal of International Economics, 79 (1), 137-142.

r&r:

“Rating agencies in the face of regulation - rating inflation and regulatory arbitrage”, October 2011, joint with Christian C. Opp & Milton Harris, Journal of Financial Economics.
This paper develops a rational expectations model to analyze how rating agencies alter their information acquisition and disclosure policy when ratings are used for regulatory purposes such as bank capital requirements. Although rating agencies generally publish informative ratings, sufficiently large regulatory distortions may lead to a complete break-down of delegated information acquisition - rating agencies merely facilitate regulatory arbitrage by selling inflated ratings to originators. Our model reveals that this result is more likely to occur in complex security classes and how, in general, the impact of regulation on ratings depends on the cross-sectional distribution of borrower types.

working papers:

“Self-enforcing contracts with heterogeneous discounting”, September 2011, joint with John Zhu.

This paper characterizes efficient self-enforcing contracts when the principal is allowed to be more patient than the agent. Under minimal assumptions, we provide a strong characterization of Pareto-optimal contracts. First, we prove the existence of a stationary Pareto-optimal contract. Second, we show that every Pareto-optimal contract is well-behaved in the sense that it converges monotonically to some stationary Pareto-optimal contract over time. Our techniques can be applied to a host of practical contracting models considered in the general literature. Moreover, we are able to reconcile the seemingly conflicting predictions of Ray (2002) and Lehrer and Pauzner (1999). Under our unified theory of inter-temporal contract dynamics, Lehrer-Pauzner is shown to be a generic result when the agency problem is shut down. However, Ray is shown to be a specialized result when the relative impatience problem is shut down in versions of the model in which one can embed a notion of incentive-compatible monetary transfer.

“Dynamic collusion, valuation and business cycles in general equilibrium”, September 2011, joint with Christine Parlour and Johan Walden.
We develop a dynamic general equilibrium model with many different industries, in which firms interact strategically in product markets. Our approach extends previous literature by endogenizing the market price of risk and allowing for more general risk structures. General equilibrium in the model is shown to exist under general conditions. Strategic interaction between firms amplifies business cycles, small changes in long-term growth rates can have drastic effects on the equilibrium outcome, whereas temporary productivity effects have marginal impact, and the overall competitiveness of the economy only depends on long-term growth. A firm's expected returns is impacted by the industrial environment in which it operates, in line with what has been observed in the empirical literature. We also derive several novel empirical predictions. Overall, our model suggests that industrial characteristics should be informative about expected returns of individual firms over the business cycle.

“Cash is king - revaluation and the medium of exchange in merger bids”, July 2011, joint with Ulrike Malmendier and Farzad Saidi.

Returns to merger announcements are commonly used to measure the expected value created by mergers. We provide evidence that a significant portion of announcement returns reflects, instead, a revaluation of the target. Using a sample of withdrawn deals from 1980 to 2008, we show that targets of cash offers are revalued by 15% post-withdrawal. Stock bids, on the other hand, do not seem to provide target information: targets with equity offers fall back to their pre-announcement levels after withdrawal. The bidder’s choice of cash and stock does not predict withdrawals which strengthens our identification. Our results are not driven by future takeover activity since cash targets are insignificantly less likely to receive future merger bids. Our findings, as well as the observed value changes in acquirers, are consistent with cash bids indicating target undervaluation while stock bids signal acquirer overvaluation. Using our revaluation estimates from the withdrawn sample our results indicate that the average cash target in the sample of successful deals is revalued upwards by $105 million. The average stock acquirer is revalued downwards by $430 million. Further research on the sources of private information is important and allows us to better understand value creation in M&A transactions.

work in progress:

"Bad banks, bad assets, bad regulation?", joint with Roman Inderst.

"Fighting Fire with Fire: Time Inconsistency, Rating Contingent Regulation, and Financial Crises", 2011, joint with Milton Harris and Christian Opp

"Biases and Self-Selection: A Theoretical Investigation of the Rothschild-Stiglitz Insurance Model", September 2005.

dissertation committee:

Douglas W. Diamond

Milton Harris

Raghuram G. Rajan

Morten Sorensen

(773) 702-7283

(773) 702-2549

(773) 702-4437

(773) 834-1726

Douglas.Diamond@ChicagoGSB.edu

Milton.Harris@ChicagoGSB.edu

Raghuram.Rajan@ChicagoGSB.edu