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American Economic Review: Vol. 102 No. 6 (October 2012)

AER Volume. 102, Issue 6 | Previous ArticleNext Article

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The Collateral Channel: How Real Estate Shocks Affect Corporate Investment

Article Citation

Chaney, Thomas, David Sraer, and David Thesmar. 2012. "The Collateral Channel: How Real Estate Shocks Affect Corporate Investment." American Economic Review, 102(6): 2381-2409.

DOI: 10.1257/aer.102.6.2381

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. To compute the sensitivity of investment to collateral value, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. Over the 1993-2007 period, the representative US corporation invests $0.06 out of each $1 of collateral. (JEL D22, G31, R30)

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Authors

Chaney, Thomas (U Chicago)
Sraer, David (Bendheim Center for Finance, Princeton U)
Thesmar, David (HEC Paris)

JEL Classifications

D22: Firm Behavior: Empirical Analysis
G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
R30: Real Estate Markets, Production Analysis, and Firm Location: General