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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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Corporate Governance and Real Estate Collateral Effect
Daxuan Zhao,Tien Foo Sing +1 more
TL;DR: In this article, the authors show that the positive collateral-investment relationship is enhanced with the corporate governance of firms, and that firms with strong corporate governance are more likely to increase debt capacity via the collateral channel.
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Natural disasters and firm leasing: A collateral channel
TL;DR: In this article , the role of lease financing in disaster-affected firms under collateral constraints is studied, where the authors find that affected firms obtain financing through operating leases after natural disasters, and highlight the importance of operating leases for collateral-constrained firms.
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The Effect of Real Estate Prices on Banks' Lending Channel
TL;DR: In this article, the authors identify the heterogeneous shocks to real estate prices that affect banks by summarizing the land prices of their borrowing firms and find that a bank that faces a rise in land prices increases its capital, total loans, real estate loans, and loans backed by real estate collateral.
References
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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?
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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
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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.