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
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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) Journal of Finance, Accepted
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 incentive design when managers can influence how the market values different performance metrics and their pay depends on stock prices. When the board wants the manager to prioritize one metric (e.g., investments), she can deviate by focusing on another (e.g., earnings) and induce the market to do the same. The deviation changes how performance is incorporated into prices, so the price distributions that determine optimal incentives differ from the equilibrium distribution. This wedge yields incentive schemes that appear suboptimal ex post -- e.g., pay-for-failure and lax reporting standards. We discuss implications for corporate short-termism and interpreting pay-performance sensitivities.
Self-Reinforcing Glass Ceilings (with Carlos F. Avenancio-León and Leslie Sheng Shen)
Revise and resubmit, AEJ Micro
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.
Ownership and Competition (with Jan Schneemeier)
Reject and resubmit, Journal of Finance
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.
We develop a framework of how firms use local labor market power to influence politics. In the model, a dominant employer shapes the preferences of local voters by influencing their beliefs about how electoral outcomes will impact its economic activity. In some cases, the employer uses its market power to generate political failures -- convince voters to vote against their interests. This form of electoral interference can contribute to political polarization, substitute for money in politics, and is hard to counteract even for a well-intentioned politician. Using survey and individual-level voting data, we provide evidence that dominant employers shape politics.
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.
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