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Quantifying Reduced-Form Evidence on Collateral Constraints

Author

Listed:
  • Sylvain Catherine

    (University of Pennsylvania)

  • Thomas Chaney

    (USC - University of Southern California, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research)

  • Zongbo Huang

    (CUHK - The Chinese University of Hong Kong [Hong Kong], Shenzhen University [Shenzhen])

  • David Sraer

    (UC Berkeley - University of California [Berkeley] - UC - University of California, CEPR - Center for Economic Policy Research, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research)

  • David Thesmar

    (MIT - Massachusetts Institute of Technology, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research, CEPR - Center for Economic Policy Research)

Abstract

This paper quantifies the aggregate effects of financing constraints. We start from a standard dynamic investment model with collateral constraints. In contrast to the existing quantitative literature, our estimation does not target the mean leverage ratio to identify the scope of financing frictions. Instead, we use a reduced-form coefficient from the recent corporate finance literature that connects exogenous debt capacity shocks to corporate investment. Relative to a frictionless benchmark, collateral constraints induce losses of 7.1% for output and 1.4% for total factor productivity (TFP) (misallocation). We show these estimated losses tend to be more robust to misspecification than estimates obtained by targeting leverage.

Suggested Citation

  • Sylvain Catherine & Thomas Chaney & Zongbo Huang & David Sraer & David Thesmar, 2022. "Quantifying Reduced-Form Evidence on Collateral Constraints," SciencePo Working papers Main hal-03869851, HAL.
  • Handle: RePEc:hal:spmain:hal-03869851
    DOI: 10.1111/jofi.13158
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03869851
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