Alexandre Corhay

Assistant Professor of Finance
Rotman School of Management
University of Toronto

105 St. George Street
Toronto, ON M5S 3E6


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

     Working Papers

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

We develop a capital structure model in which firms feature differential flexibility in adjusting output prices. 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. Moreover, a cash-flow volatility shock increases the cost of debt more for inflexible-price firms. We confirm these predictions empirically and exploit the 2008 Lehman Brothers bankruptcy to show that inflexible price firms with high pre-shock rollover risk exposure experience a significantly larger increase in credit spreads following the event. 

SFS Cavalcade.

This paper shows that the effect of inflation on asset prices and real aggregates depends on the financial intermediation sector. When firms finance using nominal long-term debt issued by financial intermediaries, unexpected changes in inflation lead to a wealth transfer across sectors. Higher inflation decreases firms' real liabilities and default risk, which helps reduce debt overhang. However, it hurts intermediaries' balance sheet, leading to a contraction in credit. We show theoretically that the ultimate effect of inflation depends on the tightness of financing constraints in the intermediation sector. We find strong empirical evidence consistent with these results. We also show that an inflation policy responding to both financial and real variables can help stabilize our economy.

Strategic product diversity, with Nuno Clara, and Howard Kung.

AFA Conference.

We document a decreasing pattern in product concentration within multiproduct firms since the early 2000s. Larger firms are increasingly selecting a more diverse product range outside of their core competence. Expanding firm boundaries is closely intertwined with rising industry concentration as industry leaders are consolidating market power by growing horizontally through product creation. We build a general equilibrium model of multi-product firms featuring endogenously fluctuating firm and industry boundaries. External financing costs are quantitatively important for explaining the negative relation between product and industry concentration. The growing importance of the intra-firm extensive margin contributes to the aggregate productivity slowdown and declining trend in idiosyncratic volatility.

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

ITAM Finance conference, Mitsui Finance Symposium, EFA, Tepper/LAEF Macro-Finance Conference, AFA, Finance Down Under Conference, ANU Asset Pricing Conference, SFS Cavalcade, NBER Summer Institute.

The dramatic stock market crash of March 2020 was preceded by a prolonged rise in Tobin's Q and a productivity slowdown. Do longer stock market booms and sharper corrections reflect structural changes in the US economy? We address this question about Q by estimating an endogenous growth model featuring realistic risk premia and markups. Our baseline estimates highlight the importance of rising market power for explaining increasing valuation ratios despite declining growth prospects with weakening investment and innovation over the past decade. High industry concentration exacerbates economic downturns and stock market corrections triggered by adverse economic shocks. We provide novel forecasts about growth expectations based on current market valuations using our structural model.

Revise & Resubmit, Review of Financial Studies
Risk Management Conference, WFA, Fixed Income and Financial Institutions Conference, SFS Cavalcade, Young Scholars Finance Consortium, Econometric Society North-America, CICF, European Economic Association - European Econometric Society, NUS Annual Risk Management Conference.
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.

Discount rates, debt maturity, and the fiscal theory, with Thilo Kind, Howard Kung, and Gonzalo Morales.
Revise & Resubmit, Journal of Finance
CEPR European Summer Symposium, Econometrics Society, Macro Finance Workshop, WFA, European Economic Association, CAPR Workshop on Investment and Production Based Asset Pricing, SED, Advances in Fixed Income and Macro-Finance Research, MMCI Research Conference, CEBRA Conference.

This paper explores interactions between the term structure and government debt maturity in the fiscal theory using a macroeconomic model. As the expected returns of government liabilities differ across maturities, rebalancing the maturity structure changes the government cost of capital. In the .fiscal theory, changes in discount rates affect inflation through the intertemporal government budget equation. When the nominal yield curve is upward- (downward-) sloping, the fiscal discount rate channel implies that shortening maturity dampens (amplifies) the stimulative effects of quantitative easing policies. These discount rate effects can help explain the weak inflation responses following the quantitative easing operations.

Working in Progress