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The Collateral Channel: How Real Estate Shocks Affect Corporate Investment

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  • Thomas Chaney
  • David Sraer
  • David Thesmar

Abstract

What is the impact of real estate prices on corporate investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate investment. To compute the sensitivity of investment to collateral value, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. Over the 1993-2007 period, the representative US corporation invests $0.06 out of each $1 of collateral. (JEL D22, G31, R30)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 6 (October)
Pages: 2381-2409

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:6:p:2381-2409

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  1. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  2. Efraim Benmelech & Mark J. Garmaise & Tobias J. Moskowitz, 2005. "Do Liquidation Values Affect Financial Contracts? Evidence from Commercial Loan Contracts and Zoning Regulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(3), pages 1121-1154, August.
  3. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
  4. Adriano Rampini & Andrea Eisfeldt, 2007. "Leasing, Ability to Repossess, and Debt Capacity," Working Papers 07-19, Center for Economic Studies, U.S. Census Bureau.
  5. Joshua D. Rauh, 2006. "Investment and Financing Constraints: Evidence from the Funding of Corporate Pension Plans," Journal of Finance, American Finance Association, American Finance Association, vol. 61(1), pages 33-71, 02.
  6. Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /1991/233, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  7. Barro, Robert J, 1976. "The Loan Market, Collateral, and Rates of Interest," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 8(4), pages 439-56, November.
  8. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(3), pages 1253-1296, August.
  9. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 169-215, February.
  10. Gan, Jie, 2007. "Collateral, debt capacity, and corporate investment: Evidence from a natural experiment," Journal of Financial Economics, Elsevier, Elsevier, vol. 85(3), pages 709-734, September.
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