Alexandre Corhay

Publications

Competition, Markups and Predictable Returns., with Howard Kung and Lukas Schmid.
Review of Financial Studies

Discount rates, debt maturity, and the fiscal theory, with Thilo Kind, Howard Kung, and Gonzalo Morales.
Journal of Finance

Working Papers

Inflation risk and the finance-growth nexus., with Jincheng Tong.
Revise & Resubmit, Review of Economic Studies

When firms finance using long-term nominal debt issued by financial intermediaries, changes in expected inflation lead to a wealth transfer across sectors. Higher expected inflation decreases firms' real liabilities and default risk, which helps reduce debt overhang. However, it hurts intermediaries' real assets, leading to a contraction in credit supply. We theoretically demonstrate that intermediary financing conditions play a key role in the transmission of nominal shocks, influencing the premium investors require for bearing inflation risk. We provide empirical evidence supporting our novel inflation transmission mechanism. We also show that Taylor rules responding to both financial and real variables can help stabilize our economy.

Q: Risks, Rents, or Growth?, with Howard Kung and Lukas Schmid.
Revise & Resubmit, Journal of Financial Economics

We document that the increasing polarization in Tobin’s Q within industries is closely connected to the growing divergence in rents and the emergence of superstar firms over the past four decades, while discount rates and growth rates did not exhibit the same increasing dispersion. We explain these industry polarization trends in an estimated general equilibrium model where each industry consists of large superstar oligopolists and small monopolistically competitive firms with endogenous transitions between them. Small firms make investments in speculative innovation to increase their probability of becoming a superstar. Our model estimation finds that rising entry barriers in both small and superstar firms contribute to rising polarization in markups, but the rising barriers to creating small firms account for most of the divergence in Q. Stunting the creation of small firms generates greater incentives for speculative innovation, magnifying the impact of market power dispersion on industry polarization in Q. 

Markup Shocks and Asset Prices, with Jun E. Li,  and Jincheng Tong.

We explore the asset pricing implications of shocks that allow firms to extract more rents from consumers. These markup shocks directly impact the representative household’s marginal utility and the firms' cash flow. Using firm-level data, we construct a measure of aggregate markup shocks and show that the price of markup risk is negative, that is, a positive markup shock is associated with high marginal utility states. Markup shocks generate differences in risk premia due to their heterogeneous impact on firms. Firms that have larger exposures to markup shocks are less risky and have lower expected returns. We rationalize these findings in a general equilibrium model with markup shocks.

Nominal Price Rigidities and Credit Risk, with Patrick Augustin, Linxiao Cong, and Michael Weber.

We develop a capital structure model in which firms feature differential flexibility in adjusting output prices to shocks. Inflexible-price firms have lower profits and higher cash-flow volatility, leading in equilibrium to lower financial leverage, shorter debt duration, higher cost of debt, more stringent debt covenants, and higher precautionary cash holdings. Cash-flow volatility shocks increase the cost of debt more for inflexible-price firms. We confirm these predictions empirically: inflexible-price firms experience a significantly larger increase in credit spreads in response to monetary policy shocks and to the 2008 Lehman Brothers bankruptcy, especially when they face higher pre-shock rollover risk. 

Firm Product Concentration and Asset Prices., with Nuno Clara, and Howard Kung.

Average product concentration within firms has been declining since the mid-2000s. We find that lower product concentration is associated with lower productivity, expected returns, and idiosyncratic volatility across firms. These empirical relations are explained in a general equilibrium model of multiproduct firms with endogenous firm boundaries. Parameters governing the flexible production technology are identified using the GIV approach of Gabaix and Koijen (2020) by exploiting fat tails in the distribution of product mix. Overall, this paper highlights the importance of firm boundaries for explaining asset prices and firm dynamics.

Industry competition, credit spreads, and levered equity returns.
Revise & Resubmit, Review of Financial Studies

This paper examines the relation between industry competition, credit spreads, and levered equity returns. I build a quantitative model where firms make investment, financing, and default decisions subject to aggregate and idiosyncratic risk. Firms operate in heterogeneous industries that differ by the intensity of product market competition. Higher competition reduces profit opportunities and increases default risk for debtholders. Equityholders are protected against default risk due to the option value arising from limited liability. In equilibrium, competitive industries are characterized by higher credit spreads, but lower expected equity returns. I find strong empirical support for these predictions across concentration terciles.