Alessio Piccolo
Assistant Professor of Finance
Kelley School of Business, Indiana University
You can find my CV here and reach me at apiccol@iu.edu
Google Scholar profile SSRN webpage
Embedded Files
Research Papers
Credit Ratings and Market Information (with Joel Shapiro) Review of Financial Studies, 2022, 35(10), 4425–4473 (Lead Article and Editor's Choice)
Accurate credit ratings are important for both investors and regulators. We demonstrate that the market for credit risk provides an important source of discipline for credit rating agencies (CRAs). We examine a model in which a CRA's rating is followed by a market for credit risk that provides a public signal - the price. More-informative trading increases the CRA's incentives to be accurate by making rating errors more transparent. We show that this source of discipline is (a) robust to moral hazard, multiple CRAs, and connected primary and secondary markets and (b) specific to the market for credit risk.
Resilience in Collective Bargaining (with Carlos F. Avenancio-León and Roberto Pinto) Journal of Financial Economics, 2025, 175
Issue Brief in: Washington Center for Equitable Growth, UC San Diego Today, Inside INdiana Business
A central finding of the theoretical literature on bargaining is that parties’ attitudes towards delay influence bargaining outcomes. However, the ability to endure delays, resilience, is often private information and hard to measure in most real-world contexts. In the context of collective bargaining, we show firms actively attempt to become \textit{financially} resilient in anticipation of labor negotiations. Firms adjust their financial resilience to respond to the passage of right-to-work laws (RWLs). Unions' financial structure also responds to RWLs. Our findings suggest resilience is key to understanding the process through which collective bargaining determines wages.
Externalities of Responsible Investments (with Michele Bisceglia and Jan Schneemeier)
Revise and resubmit, Journal of Finance
We develop a model to study the efficiency of socially responsible investing (SRI) as a market-based mechanism to control firms' externalities. When responsible and profit-motivated investors interact, the former tend to concentrate on a subset of firms in the economy, while excluding others. This concentration of responsible capital can mitigate free-riding and coordination issues in the adoption of green technologies, but it can also create product market power and crowd out the green investments of excluded firms. If the crowding-out dominates, firms' aggregate green investments and welfare are higher without SRI. In equilibrium, responsible capital concentrates the most when concentration is the least desirable.
We study how the two-way interaction between corporate strategies and market valuations affects the design of managerial incentives. We describe how contracts motivate managers to focus on the metrics of performance that are more valuable to firms, and how incentives that seek this objective may appear to an observer who ignores the feedback to valuations. Low-powered incentives can be optimal when the most valuable metrics induce less volatile valuations. The managers' ability to influence valuations makes (a) firms too focused on earnings in their strategies and (b) the observed price-pay sensitivity a poor proxy for the quality of incentives.
We study how dominant employers can act as electoral monopsonies, directly shaping electoral outcomes by leveraging local labor market power. We consider a model where a dominant employer can reshape the political preferences of the local electorate by conditioning their degree of economic activity on electoral outcomes. This form of electoral interference creates polarization in the community: some voters turn against redistributive policy, in some cases strongly, as they may benefit from the firm's economic activity. Over time, however, the firm's influence undermines local institutions and labor markets, ultimately harming all voters and, in some cases, the firm itself. Using U.S. individual voting records data and a shift-share instrument based on national industry trends and historical local employment patterns, we test the model's predictions and show that areas with higher employment concentration are more likely to see increased voter registration, turnout, and campaign donations for the Republican party. These political shifts are accompanied by long-run declines in population, labor force, tax base, and per capita public sector size.
Ownership and Competition (with Jan Schneemeier)
Yihong Xia Best Paper Prize at the China International Conference in Finance 2021
We model the trade-offs of an investor who builds positions and exerts governance in competing firms. The implicit cost of doing traditional governance is under-diversification, since her incentives to cut slack and improve efficiency are low when she has similar exposure to all firms in an industry. The benefit is to escape the incentive to push firms to compete less aggressively, and avoid the potential litigation and reputational costs. We study how these trade-offs shape the equilibrium interactions of ownership, governance, and competition, and the role of competition policy in a world where investors influence the objectives of competing firms.
After the gender pay gap narrows, how do labor markets readjust? We leverage deregulation events to show how reductions in the gender pay gap catalyze labor market responses that perpetuate gender inequities. When the pay gap narrows in a specific sector, women are relatively more likely to seek jobs in that sector, while men readjust their search to less-equitable sectors. These compositional effects decrease female participation in less-equitable sectors, which typically offer higher wages, reinforcing gender stereotypes and social norms that contribute to the glass ceiling. These dynamics shed light on the determinants of persistent gender inequities, gender sorting, and limits to Becker's theory of discrimination, and underscore the need for reforms that are cross-sectoral and comprehensive to effectively achieve meaningful reductions in gender inequities across the labor market.
I analyze a model of competition between credit rating agencies (CRAs). In equilibrium, investors buy only assets that received high ratings from multiple CRAs. This has two contrasting effects on the quality of certification. On the one hand, the issuer needs to pass the screening of multiple CRAs; other things being equal, this improves certification. On the other hand, it has the perverse effect of incentivizing dishonest ratings, by introducing a team dimension that dilutes the CRAs' reputational concerns. When the perverse effect dominates, competition reduces the quality of certification. However, mandating disclosure of indicative ratings can restore the first-best outcome.
Google Sites
Report abuse