Giacinta Cestone

Giacinta Cestone obtained a PhD in Economics from the University of Toulouse (France). She has previously held research and teaching positions in various institutions such as the Institute for Economic Analysis (IAE, Barcelona), the University of Salerno (Italy) and Queen Mary, University of London. Her research interests are in the areas of Corporate Finance, Corporate Governance, and Industrial Organisation.

In her research Giacinta Cestone has investigated the interaction between corporate finance and product market competition. Her paper “The Deep Pocket Effect of Internal Capital Markets” provides empirical evidence that affiliation with a cash-rich group represents a source of competitive strength for manufacturing firms. Giacinta is currently working on a project analysing the interplay between internal capital and labour markets in business groups. This research project, joint with C. Fumagalli, F. Kramarz and G. Pica, is the recipient of one of the AXA Grants-2012 Campaign and of a Leverhulme Trust Research Project Grant.

Giacinta has also contributed to the literature on venture capital financing; in ongoing work, she analyses how double-sided asymmetric information shapes venture capital syndication deals. In a earlier paper, she provides a model to determine the optimal allocation of cash flow and control rights in venture capital deals. She has also studied the relationship between corporate social responsibility and corporate governance.

Giacinta has published her articles in the Review of Finance, the Journal of Financial Economics, the Journal of Finance, the Rand Journal of Economics, and the Journal of Economics and Management Strategy. She is a member of the Economic Advisory Group on Competition Policy (DG Competition, European Commission) and a research associate of the European Corporate Governance Institute (ECGI).

Qualifications

PhD in Economics, University of Toulouse, France

Employment

• Lecturer in Economics, Queen Mary University of London, Sep 2007 – Mar 2010
• Associate Professor of Economics, University of Salerno, Fisciano, Jan 2005 – Aug 2007
• Ramon y Cajal Fellow, Instituto de Análisis Económico (CSIC), Barcelona, Sep 2002 – Dec 2005
• Marie Curie Fellow, Instituto de Análisis Económico (CSIC), Barcelona, Sep 1999 – Aug 2002

Fellowships

• Ramon y Cajal Fellowship, Spain, Institute for Economic Analysis, Barcelona, Jan 2002 – Mar 2005
• Marie Curie Fellowship, Institute for Economic Analysis, Barcelona, Jan 2000 – Dec 2001
• Ente Einaudi Post-doctoral Fellowship, Ente Luigi Einaudi, Rome, May – Jul 1999

Memberships of Professional Organisations

• Member, Economic Advisory Group on Competition Policy (DG Competition, European Commission), Jan 2014 – present
• Research Associate, European Corporate Governance Institute (ECGI), Sep 2007 – present
• Member, Economic Advisory Group on Competition Policy (DG Competition, European Commission)

Awards

• French Social Investment Forum (2008) Finance and Substainability European Research
• Finance and Substainability European Research Award for the paper "Corporate Social Responsibility and Managerial Entrenchment"
• American Finance Association (2004) Brattle Prize
• Nomination for the 2004 Brattle Prize for the paper "Anticompetitive Financial Contracting"
• The European Association for Research in Industrial Economics (EARIE) (2000) EARIE Young Economists' Essay Competition
• First Prize EARIE Young Economists' Essay Competition for the paper "The Strategic Impact of Resource Flexibility in Business Groups"

Languages

French, Italian and Spanish; Castilian.

Expertise

Primary Topics

• Corporate Finance
• Corporate Governance
• Industrial Organization
• Venture Capital

Research

Part of my recent research investigates the role of corporate groups and conglomerates in the real economy, the functioning of internal capital markets and of internal labour markets. My paper "The Deep-Pocket Effect of Internal Capital Markets" (Journal of Financial Economics 2013) shows that the ability to rely on groups’ internal capital markets provides a competitive edge to group-affiliated firms. We provide empirical evidence that entry in manufacturing industries is negatively related to the cash reserves hoarded by incumbent business groups, and positively related to the entrant groups' cash; the ability to rely on group cash also seems to reduce exit of recent entrants. These effects are more important in environments where financial constraints are pronounced. An ongoing project (joint with Francis Kramarz, Chiara Fumagalli and Giovanni Pica) investigates the interplay between internal capital markets and internal labour markets in corporate groups. The project relies on access to INSEE data that allow us to track how French corporate groups reallocate employees across different units, and has been awarded an Axa Research Fund Grant and a Leverhulme Trust Research Project Grant. In the past three years I have also contributed to the literature on venture capital financing.

Research Topics

Internal Labour Markets and Internal Capital Markets in Business Groups

Business groups are a widespread organisational form in many countries. While group emergence has often been linked to the lack of efficient institutions, the exact determinants of group formation and evolution are still far from being understood. How do business groups differ from multi-divisional firms and what drives the choice between these two organisational structures? What are the main trade-offs determining group presence in given sectors and regions? This project aims at shedding light on these questions. We posit that for firms affiliated with groups the response to adverse shocks as well as new investment opportunities results from the combined activity of internal capital markets and internal labour markets. Hence, we expect groups to react differently to shocks with respect to stand-alone entities and even multi-segment firm (to the extent that internal capital and labour markets operate differently in the latter). To investigate these issues the project combines a theoretical analysis with an empirical investigation. We rely on data extracted from tax files that the French Fiscal Administration collects every year and that are made available to us by the INSEE.

Gender Diversity in Boards and Capital Structure

This is a joint project with Daniela Fabbri and Min Park. We aim to fill a gap in the corporate governance literature, that has mainly focused on the impact of board diversity on firm value. The project instead investigates whether board diversity affects firms' ability to raise debt finance.

Capital Budgeting when Business Group Units Face Financial Frictions

This is a theoretical paper (joint with Chiara Fumagalli) where we study whether and how the internal capital allocation within business groups should take into account the severity of the financial frictions faced by different group units. We posit that optimal capital budgeting in the presence of financial frictions may deviate from the NPV criterion, in that more financially constrained units are subsidised. This is in line with recent evidence on US multisegment firms (Billet and Mauer 2003) and Indian business groups (Gopalan, Nanda and Seru 2007).

Financial Contracting in Venture Capital Syndicates

In this ongoing work with Josh Lerner and Lucy White we analyse how double-sided asymmetric information shapes venture capital syndication deals. We analyze how appropriate design of the syndicating VCs' cash-flow rights can induce them to reveal their signals to each other truthfully, and how the incentive costs of syndication vary with the VCs' expertise in evaluating entrepreneurial projects. We then address the question of how lead venture capitalists should choose their syndication partners. Our findings suggest that lead VCs should not syndicate with partners much more experienced than themselves even if such partners are available: more experienced venture capitalists should select more experienced partners. This is consistent with the empirical evidence.

• Cestone, G. (2014). Venture Capital Meets Contract Theory: Risky Claims or Formal Control? Review of Finance, 18(3), pp. 1097–1137. doi:10.1093/rof/rft021.
• Boutin, X., Cestone, G., Fumagalli, C., Pica, G. and Serrano-Velarde, N. (2013). The deep-pocket effect of internal capital markets. JOURNAL OF FINANCIAL ECONOMICS, 109(1), pp. 122–145. doi:10.1016/j.jfineco.2013.02.003.
• Cespa, G. and Cestone, G. (2007). Corporate social responsibility and managerial entrenchment. Journal of Economics and Management Strategy, 16(3), pp. 741–771. doi:10.1111/j.1530-9134.2007.00156.x.
• Cestone, G. and Fumagalli, C. (2005). The strategic impact of resource flexibility in business groups. RAND Journal of Economics, 36(1), pp. 193–214.
• Cestone, G. and White, L. (2003). Anticompetitive Financial Contracting: The Design of Financial Claims. Journal of Finance, 58(5), pp. 2109–2141.
• Boutin, X., Cestone, G., Fumagalli, C., Pica, G. and Serrano-Velarde, N. (2009). The Deep-Pocket Effect of Internal Capital Markets.

Chapter

Cestone, G. (2007). Corporate Governance e Concorrenza. In Cambini, C., Giannaccari, A. and Pammolli, F. (Eds.), Le Politiche di Liberalizzazione in Italia Bologna, Italy: Il Mulino. ISBN 978-88-15-11883-7

Journal Articles (6)

• Cestone, G. (2014). Venture Capital Meets Contract Theory: Risky Claims or Formal Control? Review of Finance, 18(3), pp. 1097–1137. doi:10.1093/rof/rft021.
• Boutin, X., Cestone, G., Fumagalli, C., Pica, G. and Serrano-Velarde, N. (2013). The deep-pocket effect of internal capital markets. JOURNAL OF FINANCIAL ECONOMICS, 109(1), pp. 122–145. doi:10.1016/j.jfineco.2013.02.003.
• Cespa, G. and Cestone, G. (2007). Corporate social responsibility and managerial entrenchment. Journal of Economics and Management Strategy, 16(3), pp. 741–771. doi:10.1111/j.1530-9134.2007.00156.x.
• Cestone, G. and Fumagalli, C. (2005). The strategic impact of resource flexibility in business groups. RAND Journal of Economics, 36(1), pp. 193–214.
• Cestone, G. and White, L. (2003). Anticompetitive Financial Contracting: The Design of Financial Claims. Journal of Finance, 58(5), pp. 2109–2141.
• Cestone, G. (1999). Corporate Financing and Product Market Competition: An Overview. Giornale degli Economisti e Annali di Economia, 58(2), pp. 269–300.