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Home Values and Firm Behavior

Author

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  • Saleem Bahaj
  • Angus Foulis
  • Gabor Pinter

Abstract

The homes of firm owners are an important source of finance for ongoing businesses. We use UK microdata to show that a £1 increase in the value of the homes of a firm's directors increases the firm's investment by £0.03. This effect is concentrated among firms whose directors' homes are valuable relative to the firm's assets, that are financially constrained, and that have directors who are personally highly levered. An aggregation exercise shows that directors' homes are as important as corporate property for collateral driven fluctuations in aggregate investment demand.

Suggested Citation

  • Saleem Bahaj & Angus Foulis & Gabor Pinter, 2020. "Home Values and Firm Behavior," American Economic Review, American Economic Association, vol. 110(7), pages 2225-2270, July.
    • Handle: RePEc:aea:aecrev:v:110:y:2020:i:7:p:2225-70
    DOI: 10.1257/aer.20180649
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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