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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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Book ChapterDOI
Endogeneity in Empirical Corporate Finance1
Michael Roberts,Toni M. Whited +1 more
TL;DR: In this paper, applied researchers in corporate finance can address endogeneity concerns, including omitted variables, simultaneity, and measurement error, and discuss a number of econometric techniques aimed at addressing endogeneity problems, including instrumental variables, difference-in-differences estimators, regression discontinuity design, matching methods, panel data methods, and higher order moments estimators.
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Economic policy uncertainty and corporate investment: Evidence from China
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Collateral, Risk Management, and the Distribution of Debt Capacity
TL;DR: In this article, the opportunity cost of engaging in risk management and conserving debt capacity to hedge future financing needs is forgone current investment, and is higher for more productive and less well-capitalized firms.
Journal ArticleDOI
The Loan Market, Collateral, and Rates of Interest
TL;DR: In this paper, the authors developed a theoretical model in which collateral is a mechanism for enforcing loan contracts, and the expected interest charge paid by the borrower will be correspondingly above the underlying, transaction-cost-free rate of return.