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Real Estate Prices and Corporate Investment: Theory and Evidence of Heterogeneous Effects across Firms

Denis Fougere (), Remy Lecat () and Simon Ray

Journal of Money, Credit and Banking, 2019, vol. 51, issue 6, 1503-1546

Abstract: In this paper, we investigate the effect of real estate prices on productive investment. We build a theoretical framework of firms' investment with credit rationing and real estate collateral. We show that real estate prices affect firms' borrowing capacities through two channels. An increase in real estate prices raises the value of the firms' pledgeable assets and mitigates the agency problem characterizing the creditor–entrepreneur relationship. It simultaneously cuts the expected profit due to the increase in the cost of inputs. We test our theoretical predictions using a large French database. We do find heterogeneous effects of real estate prices on productive investment depending on the position of the firms in the sectoral distributions of real estate holdings.

Date: 2019
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https://doi.org/10.1111/jmcb.12631

Related works:
Working Paper: Real Estate Prices and Corporate Investment: Theory and Evidence of Heterogeneous Effects across Firms (2019)
Working Paper: Real Estate Prices and Corporate Investment: Theory and Evidence of Heterogeneous Effects across Firms (2018) Downloads
Working Paper: Real estate prices and corporate investment: theory and evidence of heterogeneous effects across firms (2017) Downloads
Working Paper: Real estate prices and corporate investment: theory and evidence of heterogeneous effects across firms (2017) Downloads
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