The Journal of Finance

Venture Capital and Capital Allocation

Published: 02/13/2019   |   DOI: 10.1111/jofi.12756

GIORGIA PIACENTINO

I show that venture capitalists' motivation to build reputation can have beneficial effects in the primary market, mitigating information frictions and helping firms go public. Because uninformed reputation‐motivated venture capitalists want to appear informed, they are biased against backing firms—by not backing firms, they avoid taking low‐value firms to market, which would ultimately reveal their lack of information. In equilibrium, reputation‐motivated venture capitalists back relatively few bad firms, creating a certification effect that mitigates information frictions. However, they also back relatively few good firms, and thus, reputation motivation decreases welfare when good firms are abundant or profitable.

The Wall Street Walk when Blockholders Compete for Flows

Published: 08/06/2015   |   DOI: 10.1111/jofi.12308

AMIL DASGUPTA, GIORGIA PIACENTINO

Effective monitoring by equity blockholders is important for good corporate governance. A prominent theoretical literature argues that the threat of block sale (“exit”) can be an effective governance mechanism. Many blockholders are money managers. We show that, when money managers compete for investor capital, the threat of exit loses credibility, weakening its governance role. Money managers with more skin in the game will govern more successfully using exit. Allowing funds to engage in activist measures (“voice”) does not alter our qualitative results. Our results link widely prevalent incentives in the ever‐expanding money management industry to the nature of corporate governance.

Intermediation Variety

Published: 10/02/2021   |   DOI: 10.1111/jofi.13084

JASON RODERICK DONALDSON, GIORGIA PIACENTINO, ANJAN THAKOR

We explain why banks and nonbank intermediaries coexist in a model based only on differences in their funding costs. Banks enjoy a low cost of capital due to safety nets and money‐like liabilities. We show that this can actually be a disadvantage: it generates a soft‐budget‐constraint problem that makes it difficult for banks to credibly threaten to withhold additional funding to failed projects. Nonbanks emerge to solve this problem. Their high cost of capital is an advantage: it allows them to commit to terminate funding. Still, nonbanks never take over the entire market, but other coexist with banks in equilibrium.

Conflicting Priorities: A Theory of Covenants and Collateral

Published: 04/09/2025   |   DOI: 10.1111/jofi.13445

JASON RODERICK DONALDSON, DENIS GROMB, GIORGIA PIACENTINO

We develop a theory of secured debt, unsecured debt, and debt with anti‐dilution covenants. We assume that, as in practice, covenants convey the right to accelerate if violated, but the new secured debt retains its priority even if issued in violation of covenants. We find that such covenants are nonetheless useful: They provide state‐contingent financing flexibility, balancing over‐ and underinvestment incentives. The optimal debt structure is multilayered, combining secured and unsecured debt with and without covenants. Our results are consistent with observations about debt structure, covenant violations, and waivers. They speak to a policy debate about debt priority.

Household Debt Overhang and Unemployment

Published: 02/15/2019   |   DOI: 10.1111/jofi.12760

JASON RODERICK DONALDSON, GIORGIA PIACENTINO, ANJAN THAKOR

We use a labor‐search model to explain why the worst employment slumps often follow expansions of household debt. We find that households protected by limited liability suffer from a household‐debt‐overhang problem that leads them to require high wages to work. Firms respond by posting high wages but few vacancies. This vacancy posting effect implies that high household debt leads to high unemployment. Even though households borrow from banks via bilaterally optimal contracts, the equilibrium level of household debt is inefficiently high due to a household‐debt externality. We analyze the role that a financial regulator can play in mitigating this externality.