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

Denis Fougere, Rémy Lecat and Simon Ray ()
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Simon Ray: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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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.

Keywords: financial constraints; Firms' investment; Real estate prices; Collateral channel; Financial constraints JEL classification: D22; G30; O52; R30 (search for similar items in EconPapers)
Date: 2019-09
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-02274289
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Citations: View citations in EconPapers (5)

Published in Journal of Money, Credit and Banking, 2019, 51 (6), pp.1503-1546. ⟨10.1111/jmcb.12631⟩

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Related works:
Journal Article: 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 (2019)
Working Paper: Real Estate Prices and Corporate Investment: Theory and Evidence of Heterogeneous Effects across Firms (2018)
Working Paper: Real estate prices and corporate investment: theory and evidence of heterogeneous effects across firms (2017)
Working Paper: Real estate prices and corporate investment: theory and evidence of heterogeneous effects across firms (2017)
Working Paper: Real estate prices and corporate investment: theory and evidence of heterogeneous effects across firms (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-02274289

DOI: 10.1111/jmcb.12631

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