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The Collateral Channel: How Real Estate Shocks Affect Corporate Investment

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TLDR
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.

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References
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Journal ArticleDOI

House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis

TL;DR: This article showed that borrowing against the increase in home equity by existing homeowners is responsible for a significant fraction of both the rise in U.S. household leverage from 2002 to 2006 and increase in defaults from 2006 to 2008.
Journal ArticleDOI

Adjustment Costs and the Theory of Supply

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Investment and Financing Constraints: Evidence from the Funding of Corporate Pension Plans

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