Giulio Trigilia

Welcome to my webpage. I am Associate Professor in Finance (with tenure) at the Judge Business School of the University of Cambridge. I am also a J M Keynes Fellow, a CERF Fellow and a member of the Finance Theory Group (FTG).

Curriculum Vitae

I conduct research in:

Financial Economics
Information Economics
Contracts and Securities Design
History of Finance (with a focus on the 19th century)
Economic Theory

Below you can find an illustrated list of my published and unpublished work. I always look forward to comments, so please reach out if you have any!

Publications:

Short-term debt overhang, with Kostas Koufopoulos and Pavel Zryumov, 2026, Accepted at the Review of Financial Studies

Short-term debt in a firm’s capital structure reduces investment under asymmetric information. Investors’ interpretation of underinvestment as a positive signal about the quality of the assets in place allows the equity holders to profit from short-term debt repricing at the rollover stage. Thus, underinvestment is more pronounced at shorter maturities, in contrast to Myers (1977). Low types' incentives to mimic put an endogenous constraint on high types' underinvestment payoff via a duration floor. Because cash lowers the duration floor, an increase in a firm’s retained earnings can decrease investment.

Exchange rates and political uncertainty: the Brexit case with P. Manasse and G. Moramarco, 2024, Economica, Volume 91, Issue 362, Pages 621-652

We study the impact of political risk on exchange rates through the lenses of the Brexit Referendum experiment, where both exchange rate expectations and a time-varying political risk factor can be measured directly. We build a model which predicts that changes in the Leave probability affect both exchange rate expectations and political risk. We estimate the model for multilateral and bilateral British Pound exchange rates.

Voluntary disclosure, moral hazard & default risk with S. Fu, 2024, Management Science, Volume 70, Issue 6, 3447 - 3469

In a dynamic moral hazard setting where the manager has private evidence that predicts the firm’s cash flows, bad-news disclosure is rewarded by a lower borrowing cost relative to the no-evidence case, while no disclosure leads to higher borrowing costs. Given a capital structure, disclosure reduces the firm’s default risk by lowering its pay-for-performance sensitivity. However, disclosure may lower both firm value and managerial rents at the financing stage, as it induces a reduction in the firm’s initial liquidity.

Separating equilibria, underpricing and security design with Dan Bernhardt and Kostas Koufopoulos, 2022, Journal of Financial Economics, Volume 145, Issue 3, Pages 788-801

We revisit Nachman and Noe’s (1994) adverse selection setting, modeling capital market competition as free entry of investors and allowing firms to propose prices for their securities. We identify equilibria in which high types issue underpriced debt, which yields positive expected profits to uninformed lenders, while low types issue steeper securities, such as equity. In addition, pooling equilibria exist in which all firms issue underpriced debt.

Is there a paradox of pledgeability? with Dan Bernhardt and Kostas Koufopoulos, 2020, Journal of Financial Economics, Volume 137, Issue 3, Pages 606-611

We show that in the framework of Donaldson et al. (2019), firm value always increases in the fraction of cash flows that can be pledged as collateral. That is, pledgeability increases investment efficiency and relaxes a firm’s financing constraint. We derive this conclusion using the same contracts considered by the authors and generalize the result to an arbitrary number of states.

Optimal security design under asymmetric information and profit manipulation with Kostas Koufopoulos and Roman Kozhan, 2019, Review of Corporate Finance Studies, Volume 8, Issue 1, Pages 146–173

Entrepreneurs are privately informed about the quality of their projects and seek funds from competitive financiers. The literature restricts attention to monotonic, or “manipulation proof,” securities and finds that straight debt is the uniquely optimal contract. Monotonicity is justified by the argument that it would endogenously arise if the entrepreneur can window dress. We characterize the optimal contracts when entrepreneurs engage in window dressing. Contrary to conventional wisdom, debt is often suboptimal, and it is never uniquely optimal. Optimal contracts are non-monotonic and induce profit manipulation in equilibrium.

Working papers:

Commitment by Design: Renegotiation-proofness and the Coase Conjecture, with Kostas Koufopoulos and Xuyuanda Qi, 2026, R&R at the Review of Economic Studies

In a durable-good monopoly environment, we construct mechanisms that implement static monopoly profits while being renegotiation proof. We derive two main results. First, if collective bargaining can be ruled out, then a long-term contract can generate a coordination failure which prevents renegotiation and fully restores monopoly power. Second, with arbitrary renegotiation, a long-term (smart) contract can introduce an asymmetry of information between sellers and potential buyers, which prevents the monopolist from reselling at lower prices. The smart contract approximately achieves static monopoly profits.

Signaling and positive lender profits in competitive capital markets, with Dan Bernhardt and Kostas Koufopoulos, 2026, R&R at Management Science

We provide theoretical foundations for positive lender profits in competitive credit markets with asymmetric information, where potential borrowers have scarce collateralizable assets. When some borrowers have negative net present value projects, an equilibrium always exists in which lenders make positive profits, despite their lack of ‘soft’ information and free entry of competitors. Greater access to collateral for borrowers reduces lender profits.

Demandable debt and leverage ratchet effect, with Kostas Koufopoulos and Xuyuanda Qi, 2026 🆕

Demandable debt provides a solution to the leverage ratchet effect without requiring any additional information beyond that assumed in the existing literature. Demandable debt-holders have an option to request full repayment of debt at any time. If the firm's leverage exceeds its target debt ratio, debt-holders will exercise their option and sell this excess debt back to the firm. This mechanism disciplines the firm to maintain the target debt ratio, except under extreme negative shocks leading to inevitable bankruptcy. As the time intervals shorten, the firm can asymptotically achieve the full tax shield benefits without incurring any bankruptcy risk.

Discipline in the dark: Bank Opacity, Fragility, and Efficient Lending, with Nicolas de Souza and Kostas Koufopoulos, 2026 🆕

The creditors who discipline a bank know less than the banker about loan quality. This is not a friction but the source of banks’ comparative advantage. In a dynamic lending model with adverse selection and a soft budget constraint, a relationship bank privately learns loan quality, while its runnable creditors observe only a coarse public signal of portfolio performance. Because the bank cannot credibly disclose whether a poorly performing loan is viable, creditors withdraw after bad public news. Fragile funding then commits the bank not to refinance projects that are attractive ex post but negative-NPV at origination. This is optimal when credit risk is high. When it is low, lenders with skin in the game—such as private credit—dominate, because ex-post efficient rollover is worth more than ex-ante screening.

When it all began: competition for capital and the rise of dividends, with Fabio Braggion and Pingle Wang, 2026 🆕

Does competition for equity capital influence dividend policies? This paper examines this question using the historical setting of the 1862 Companies Act in the United Kingdom. The Act, for the first time, allowed firms to incorporate with limited liability without Parliamentary approval, triggering an unprecedented wave of joint-stock company entries. This surge intensified competition for capital and led incumbent firms to raise dividends. Dividend yields and payout initiations increased, particularly in areas with greater entry potential. Dividends thus emerged as strategic signals in the contest for capital, linking financial markets and corporate policies.

When No One Learns, Everyone Can Coordinate: Public Signals in Dynamic Adverse Selection, with Kostas Koufopoulos and Jacco Thijssen, 2026 🆕

We consider an economy with dynamic adverse selection and public, non-contractible news. The efficient allocation can be implemented by including return and buy-back options into spot sale contracts. When the signal never fully reveals the underlying private information to the uninformed party, it can be used as a coordination device which enables to screen informed agents and achieve separation at the initial stage. The signal’s correlation with private information is critical for implementation even though uninformed agents never learn any information from it. The model is applied to a buyer-seller environment, and can rationalize the pervasive use of return options in retail contracts among online or remote retailers.

Creditor rights, lender competition and firm value, with Dan Bernhardt and Kostas Koufopoulos, 2026 🆕

The real effects of creditor rights critically depend on the degree of lender competition. To show this, we introduce both lender market power and limited pledgeability of cash flows in an otherwise standard moral hazard problem. The degree of competition does not affect entry at the extensive margin, or the optimality of issuing debt. However, the extent of competition affects the intensive margin. Specifically, with competing lenders, creditor rights relax a firm's financing constraint, inducing higher firm value. In sharp contrast, with market power, creditor rights can reduce both effort and firm value, while increasing lender profit. This lender-competition channel can reconcile the limited, or even negative, effects of creditor rights reforms in developing economies.

Optimal equity earnouts under two-sided asymmetric information, with Sonny Biswas and Kostas Koufopoulos, 2025 🆕

We show in a two-sided asymmetric information problem of bilateral trade that the first-best outcome obtains as the unique equilibrium when outcomes are observable and verifiable ex post. The allocation of control rights in a corporate takeover game is efficient even when the firm is entirely owned by its manager. The optimal solution features the inclusion of equity earnouts in the contract, which is widely observed in takeover deals. Further, the prediction of our model is consistent with empirical evidence which suggests that the target shareholders retains the full value created from the transaction, while the acquirer's returns are typically close to zero.

The pitfalls of pledgeable cash flows: soft budget constraints, zombie lending and under-investment, with Dan Bernhardt and Kostas Koufopoulos, 2023

When borrowers are privately informed about their creditworthiness and lenders have a soft budget constraint, efficient investment requires a limit on the fraction of a firm’s cash flows that can be pledged to outsiders. That is, pledgeability should neither be too low nor too high. An increase in pledgeability, or, more broadly, creditor rights, can either promote re-investment in zombie firms, which increases other firms’ cost of capital, or it can lead to inefficient under-investment, depending on the composition of equilibrium credit demand. Thus, greater pledgeability can reduce net social surplus, and even trigger a Pareto loss.

Resting Working papers:

When do incomplete contracts matter? with Aristotelis Boukouras, Kostas Koufopoulos and Xuyuanda Qi, 2021

Abstract: This paper derives conditions under which the introduction of a third-party agent solves the renegotiation-proofness problem of Moore and Repullo (1988)-type mechanisms, without introducing the potential for other agents to collude with the third-party. The key novelties of our mechanism are: (i) the introduction of a third-party agent only off-equilibrium and with some probability; (ii) the fact that both its existence and its identity are unknown to the other agents. We show that under these conditions, which are satisfied in many empirical applications, a hidden third-party agent can restore the implementation of the efficient allocation. If this agent does not observe the state of the world, we provide a sufficient condition for implementation to succeed.

Optimal leverage, profitability & the decision to go public, 2019

Abstract: I introduce heterogeneous degrees of transparency in a standard costly-state-verification model. I show that the optimal capital structure can be implemented by a simple mixture of debt and equity. Optimal leverage decreases with profitability (both past and expected), in contrast to most competing theories -- such as trade-off models. When firms can choose their degree of transparency at a cost, the model delivers a theory about the decision to go public.

Momentum, echo and predictability: Evidence from the London Stock Exchange (1820-1930) with P. Wang, 2019

Abstract: We study momentum and its predictability within equities listed at the London Stock Exchange (1820-1930). At the time, this was the largest and most liquid stock market and it was thinly regulated, making for a good laboratory to perform out-of-sample tests. Cross-sectionally, we find that the size and market factors are highly profitable, while long-term reversals are not. Momentum is the most profitable and volatile factor. Its returns resemble an echo: they are high in long- term formation portfolios, and vanish in short-term ones. We uncover momentum in dividends as well. When controlling for dividend momentum, price momentum loses significance and profitability. In the time-series, despite the presence of a few momentum crashes, dynamically hedged portfolios do not improve the performance of static momentum.

Strategic default, investment & the resolution of financial distress with N. Koreli, 2018

Abstract: We study a costly-state-verification model with limited commitment. We characterize the optimal amount of strategic default and micro-found the frequency with which default turns into bankruptcy, as opposed to triggering an out-of-court restructuring.

Google Sites

Report abuse