The Collateral Channel: How Real Estate Shocks Affect Corporate Investment

Thomas Chaney (1) , David Sraer (2) , David Thesmar (3)

1 Department of Economics
2 Bendheim Center for Finance
3 GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC

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.

Keywords: Corporate investment; Real estate; Collateral

Domains: Economics and Finance

Thomas Chaney, David Sraer, David Thesmar. The Collateral Channel: How Real Estate Shocks Affect Corporate Investment. American Economic Review, 2012, 102 (6), pp.2381 - 2409. ⟨10.1257/aer.102.6.2381⟩. ⟨hal-01009900⟩