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

Valeur du collatéral et investissement des entreprises Un examen fondé sur l’évolution du marché français de l’immobilier

Thomas Chaney (), David Sraer () and David Thesmar ()
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Thomas Chaney: University of Chicago
David Sraer: INSEE - Institut national de la statistique et des études économiques (INSEE)
David Thesmar: HEC Paris - Ecole des Hautes Etudes Commerciales, CEPR - Center for Economic Policy Research

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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.

Keywords: internal financial markets; real estate bubble; marchés internes de capitaux; bulle immobilière (search for similar items in EconPapers)
Date: 2007-11
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