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The Collateral Channel: How Real Estate Shocks Affect Corporate Investment
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In this article, the impact of real estate prices on corporate investment was studied and the sensitivity of investment to real estate values was found to be a function of local variations in real estate price as shocks to the collateral value of firms that own real estate.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.read more
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Credit Markets Around the World, 1910-2014
TL;DR: In this article, the authors present evidence based on a novel sectorally disaggregated dataset on credit to the private sector for 120 countries for 1940-2014, as well as new series on total credit going back to 1910.
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Do Asset Price Bubbles have Negative Real Effects
TL;DR: This paper found that a one-standard deviation increase in housing prices is associated with a 10.3 percentage point decrease in investment of borrowing firms and a 4.2 percentage point increase in leverage.
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A Theory of Balance Sheet Recessions with Informational and Trading Frictions
TL;DR: In this article, the authors propose a theory to rationalize limited sharing of macroeconomic risk that drives balance sheet recessions as a result of informational and trading frictions in financial markets.
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Housing wealth changes and entrepreneurship: Evidence from urban China
Shimeng Liu,Sisi Zhang +1 more
TL;DR: This paper studied the impact of household-level housing wealth changes on entrepreneurship in urban China and found that a 10,000 RMB increase in housing wealth increases the propensity of a household becoming a business owner by about 0.7 percentage points in IV estimation.
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CEO to the Rescue: Residential Proximity of Private Firm CEOs and the Evolution of Corporate Profitability
Woojin Kim,Dong Ryung Yang +1 more
TL;DR: In this article, the authors study how the net profit margin of private firms improves when the CEOs relocate their primary residence to be closer to the corporate headquarters and show that the profit margin rebounds after their relocation, implying that physical proximity can serve as a proxy for personal commitment.
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Credit Rationing in Markets with Imperfect Information.
Joseph E. Stiglitz,Andrew Weiss +1 more
TL;DR: In this paper, a model is developed to provide the first theoretical justification for true credit rationing in a loan market, where the amount of the loan and amount of collateral demanded affect the behavior and distribution of borrowers, and interest rates serve as screening devices for evaluating risk.
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How Much Should We Trust Differences-In-Differences Estimates?
TL;DR: In this article, the authors randomly generate placebo laws in state-level data on female wages from the Current Population Survey and use OLS to compute the DD estimate of its "effect" as well as the standard error of this estimate.
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Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?
Steven N. Kaplan,Luigi Zingales +1 more
TL;DR: In this article, the authors investigated the relationship between financing constraints and investment-cash flow sensitivities by analyzing the firms identified by Fazzari, Hubbard, and Petersen as having unusually high investment cash flow sensitivity.
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Agency Costs, Net Worth, And Business Fluctuations
Ben S. Bernanke,Mark Gertler +1 more
TL;DR: The authors constructs a simple neoclassical model of intrinsic business cycle dynamics in which borrowers' balance sheet positions play an important role and shows that the agency costs of undertaking physical investments are inversely related to the entrepreneur's/borrower's net worth.
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Tobin's Marginal q and Average q : A Neoclassical Interpretation
TL;DR: In this paper, the optimal rate of investment as a function of marginal q adjusted for tax parameters is derived from data on average q assuming the actual U.S. tax system concerning corporate tax rate and depreciation allowances.