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The Collateral Channel: How Real Estate Shocks Affect Corporate Investment

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Listed author(s):
  • 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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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.6.2381
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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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Find related papers by JEL classification:
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
  • G3 - Financial Economics - - Corporate Finance and Governance

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  1. 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, Oxford University Press, vol. 120(3), pages 1121-1154.
  2. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
  3. Andrea L. Eisfeldt & Adriano A. Rampini, 2009. "Leasing, Ability to Repossess, and Debt Capacity," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1621-1657, April.
  4. Thomas Chaney & David Sraer & David Thesmar, 2012. "The Collateral Channel: How Real Estate Shocks Affect Corporate Investment," American Economic Review, American Economic Association, vol. 102(6), pages 2381-2409, October.
  5. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
  6. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
  7. Gan, Jie, 2007. "Collateral, debt capacity, and corporate investment: Evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 85(3), pages 709-734, September.
  8. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 841-879.
  9. Joshua D. Rauh, 2006. "Investment and Financing Constraints: Evidence from the Funding of Corporate Pension Plans," Journal of Finance, American Finance Association, vol. 61(1), pages 33-71, 02.
  10. Thomas Chaney & David Sraer & David Thesmar, 2012. "The Collateral Channel: How Real Estate Shocks Affect Corporate Investment," Sciences Po publications info:hdl:2441/75koqefued8, Sciences Po.
  11. Vidhan K. Goyal & Takeshi Yamada, 2004. "Asset Price Shocks, Financial Constraints, and Investment: Evidence from Japan," The Journal of Business, University of Chicago Press, vol. 77(1), pages 175-200, January.
  12. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  13. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 169-215.
  14. Barro, Robert J, 1976. "The Loan Market, Collateral, and Rates of Interest," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 8(4), pages 439-456, November.
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