Giulio Trigilia

Working Papers


Voluntary disclosure under dynamic moral hazard (joint with Shiming Fu) - 2018

  • We introduce voluntary disclosure in a dynamic agency model with non-verifiable cash flows. Evidence reduces the use of high powered cash incentives, and the optimal contract features “pay for verifiable bad luck”. The firm solvency and liquidity dynamics can be implemented by long-term debt, equity, and a credit line with interest rate contingent on both the disclosed evidence and the reported cash flow. Against the conventional wisdom, more frequent expected disclosure might lower firm value ex ante. As more evidence becomes available, two countervailing forces shape the solvency and liquidity dynamics: while firm value becomes more persistent after disclosure of bad news, the firm faces higher interest rate charges both in low states (absent disclosure), and when cash flows are high. For low profitability firms, the two effects must induce a non-monotonicity in firm value: more widespread evidence leads to less firms surviving in the long run. 

Optimal leverage and transparency - 2017

  • I consider a costly-state-verification model where investors observe the realized return with some probability. I interpret a higher probability that the investors are informed as capturing either the transparency of a firm’s business, or the informational efficiency of the market it operates in. The model covers all degrees of informational asymmetries between two extremes: full opacity (Gale and Hellwig (1985)) and perfect information (Modigliani and Miller(1958)). For intermediate degrees of asymmetric information, I find that the optimal capital structure can be implemented by a mixture of debt and equity and, consistently with the evidence, leverage negatively correlates with transparency.


Optimal security design under asymmetric information and profit manipulation (joint with Kostas Koufopoulos and Roman Kozhan) - 2018

R&R Review of Corporate Finance Studies

  • ​We consider a model of external financing in which 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 unique optimal contract. We characterize the optimal contract when entrepreneurs can misreport their earnings by some amount. Straight debt is often suboptimal and never uniquely optimal. The optimal contract is non-monotonic and involves profit manipulation in equilibrium. ​​It can be implemented as debt with performance bonuses.

Estimating Teacher's value added, evidence from a randomization procedure at a UK university (joint with Rocco d'Este and Gonzalo Gaete-Romeo) - 2017

Credit failures (joint with Herakles Polemarchakis and Luca Zavalloni) - 2018


Work in Progress

Sharing hidden losses (joint with Nika Koreli) - 2017

Strategic transparency (joint with Dmitry Orlov) - 2017

Endogenous leverage cycles - 2017​