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How do housing cycles influence listed firms’ R&D investment: evidence from the collateral channel

Zhao Rong and Jinlan Ni ()

Economics of Innovation and New Technology, 2020, vol. 29, issue 3, 287-312

Abstract: Firm innovation is essential to long-run economic growth. Financially constrained R&D firms may use firm-owned properties as collateral to finance their R&D projects. Therefore, the housing price cycle can affect firms’ R&D investment through influencing their real estate value. By examining listed R&D firms during the housing boom period 2002–2006 in the U.S., we find that a $1 increase in real estate value leads a firm to increase its R&D investment by $0.38. We also find that this collateral effect is more pronounced among financially constrained R&D firms than that among unconstrained ones. Additionally, we examine the housing bust period 2008–2012, and find that real estate depreciation retarded R&D investment, especially among constrained R&D firms.

Date: 2020
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DOI: 10.1080/10438599.2019.1616662

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