The Collateral Channel: How Real Estate Shocks Affect Corporate Investment

Chaney, Thomas; Sraer, David; Thesmar, David

doi:10.1257/aer.102.6.2381

Cited by 725 publications

(143 citation statements)

References 28 publications

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“…2 See Garvey and Hanka (1999). 3 See Cummins, Hassett, and Hubbard (1994), Yagan (2015), Mullainathan (1999, 2003), Atanassov (2013), Greenstone (2002), Alesina et al (2005), Kilian (2008), Gan (2007), Chaney, Sraer, and Thesmar (2012), Banerjee et al (2015), Crepon et al (2015), and Mukherjee, Singh, and Zaldokas (2017). that each tax change is a complete surprise and is viewed as being permanent, in violation of rational expectations.…”

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confidence: 99%

Beyond Random Assignment: Credible Inference and Extrapolation in Dynamic Economies

Hennessy¹,

Strebulaev²

2019

The Journal of Finance

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We derive analytical relationships between shock responses and theory‐implied causal effects (comparative statics) in dynamic settings with linear profits and linear‐quadratic stock accumulation costs. For permanent profitability shocks, responses can have incorrect signs, undershoot, or overshoot depending on the size and sign of realized changes. For profitability shocks that are i.i.d., uniformly distributed, binary, or unanticipated and temporary, there is attenuation bias, which exceeds 50% under plausible parameterizations. We derive a novel sufficient condition for profitability shock responses to equal causal effects: martingale profitability. We establish a battery of sufficient conditions for correct sign estimation, including stochastic monotonicity. Simple extrapolation/error correction formulas are presented.

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confidence: 99%

Beyond Random Assignment: Credible Inference and Extrapolation in Dynamic Economies

Hennessy¹,

Strebulaev²

2019

The Journal of Finance

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“…Compustat does not identify the location of each of a firm's real estate assets. As in previous research (e.g., Chaney, Sraer, and Thesmar (2012)), I use the location of a firm's headquarters metropolitan statistical area (MSA) as a proxy for the location of the firm's real estate. I then capture changes in the value of the firm's real estate by looking at percentage changes in real estate price indexes for these areas.…”

Section: A Balance Sheet Shocks Analysismentioning

confidence: 99%

“…6 See, for example, Hart (1995) and the references therein. Gan (2007) and Chaney, Sraer, and Thesmar (2012) provide evidence that increases in the value of firms' real estate holdings lead to increases in their borrowing capacity and real investment. Benmelech and Bergman (2009) provide evidence that higher collateral values reduce borrowing costs.…”

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confidence: 99%

How Do Financing Constraints Affect Firms’ Equity Volatility?

Carvalho

2018

The Journal of Finance

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Theory suggests that financing frictions can have significant implications for equity volatility by shaping firms’ exposure to economic risks. This paper provides evidence that an important determinant of higher equity volatility among research and development (R&D)‐intensive firms is fewer financing constraints on firms’ ability to access growth options. I provide evidence for this effect by studying how persistent shocks to the value of firms’ tangible assets (real estate) affect their subsequent equity volatility. The analysis addresses concerns about the identification of these balance sheet effects and shows that these effects are consistent with broader patterns on the equity volatility of R&D‐intensive firms.

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“…Moreover, service firms have fewer tangible assets (machinery and inventory) to offer as collateral for loans than do manufacturing firms. Instead, collateral is found in the personal property of the founder and, therefore, main sources of collateral are the houses of the founders' (Chaney et al 2012).…”

Section: Implications Of the Financial Perspectives For Entrepreneurimentioning

confidence: 99%

The effect of house prices on business start-ups: A review and analysis using Swedish regional data

Berggren

Fili

Wilhelmsson

2017

REGION

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Abstract. Entrepreneurs are at the core of economic development in that they start new businesses or make existing firms grow. To fulfill this important role, entrepreneurs need access to financing. Owing to information asymmetry and the relatively high risk associated with business startups, many financiers shy away from engaging in relationships with firms during the early stages of their development. Based on the existing body of knowledge on the financing of entrepreneurship, we know that insider finance is of paramount importance in the early stages of firms' development. We expand this knowledge base by analyzing the influence of house prices on business startups across municipalities in Sweden. In our analysis, we include data from all municipalities in Sweden. Our data on house prices and control variables are collected in period one, and our data on the frequency of startups are collected in period two. We find that rising house prices in a municipality lead to a higher frequency of startups. In our spatial Durbin model, we find that a 1% increase in house prices leads to around 0.15% increase in startups. Our findings are in line with the limited international research that has been previously conducted, and therefore, our study might make a small but vital addition to this growing body of knowledge within the area of entrepreneurship and regional development.JEL classification: R11, R31, M13

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The Collateral Channel: How Real Estate Shocks Affect Corporate Investment

Cited by 725 publications

References 28 publications

Beyond Random Assignment: Credible Inference and Extrapolation in Dynamic Economies

Beyond Random Assignment: Credible Inference and Extrapolation in Dynamic Economies

How Do Financing Constraints Affect Firms’ Equity Volatility?

The effect of house prices on business start-ups: A review and analysis using Swedish regional data

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