The Collateral Channel: How Real Estate Shocks Affect Corporate Investment

Thomas Chaney, David Sraer and David Thesmar

No 16060, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What is the impact of real estate prices on corporate investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate investment. Over the 1993-2007 period, the representative U.S. corporation invests 6 cents out of each additional dollar of collateral. To compute this sensitivity, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. We address the endogeneity of local real estate prices using the interaction of interest rates and local constraints on land supply as an instrument. We address the endogeneity of the decision to own land (1) by controlling for observable determinants of ownership and (2) by looking at the investment behavior of firms before and after they acquire land. The sensitivity of investment to collateral value is stronger the more likely a firm is to be credit constrained.

JEL-codes: E44 G3 (search for similar items in EconPapers)
Date: 2010-06
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published as Thomas Chaney & David Sraer & David Thesmar, 2012. "The Collateral Channel: How Real Estate Shocks Affect Corporate Investment," American Economic Review, American Economic Association, vol. 102(6), pages 2381-2409, October.

Downloads: (external link)
http://www.nber.org/papers/w16060.pdf (application/pdf)

Related works:
Journal Article: The Collateral Channel: How Real Estate Shocks Affect Corporate Investment (2012)
Working Paper: The Collateral Channel: How Real Estate Shocks Affect Corporate Investment (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:16060

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w16060

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().