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Collateral Value and Corporate Investment: Evidence from the French Real Estate Market

Author

Listed:
  • T. CHANEY

    (University of Chicago)

  • D. SRAER

    (Insee)

  • D.THESMAR

    (HEC and CEPR)

Abstract

This paper is an empirical study of the effect of shocks to firms' collateral, with a focus on land holdings. We find evidence that stand-alone French firms are credit constrained. They invest up to .39€ more per extra euro of collateral, and they finance this additional investment by issuing more debt. This result is obtained by looking at the specific case of the Ile de France real estate bubble of the 90s, which we use as a natural experiment providing exogenous variations in land value. Consistent with the view of efficient internal capital markets, we find that the effect collateral on corporate investment is limited to stand-alone firms.

Suggested Citation

  • T. Chaney & D. Sraer & D.Thesmar, 2007. "Collateral Value and Corporate Investment: Evidence from the French Real Estate Market," Documents de Travail de l'Insee - INSEE Working Papers g2007-08, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:g2007-08
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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p06zr0b0/f1.pdf
    File Function: Document de travail de la DESE numéro G2007/08
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    More about this item

    Keywords

    Internal financial markets; real estate bubble;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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