Real estate prices and corporate investment: theory and evidence of heterogeneous effects across firms

Fougère, Denis, Rémy Lecat and Simon Ray
Authors registered in the RePEc Author Service: Denis Fougere

No 11883, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper, we investigate the effect of real estate prices on productive investment. We build a simple theoretical framework of firms’ investment with credit rationing and real estate collateral. We show that real estate prices affect firms’ borrowing capacities through two channels. An increase in real estate prices raises the value of the firms’ pledgeable assets and mitigates the agency problem characterizing the creditor-entrepreneur relationship. It simultaneously cuts the expected profit due to the increase in the cost of inputs. While the literature only focuses on the first channel, the identification of the second channel allows for heterogeneous effects of real estate prices on investment across firms. We test our theoretical predictions using a large French database. We do find heterogeneous effects of real estate prices on productive investment depending on the position of the firms in the sectoral distributions of real estate holdings. Our preferred estimates indicate that a 10% increase in real estate prices causes a 1% decrease in the investment rate of firms in the first decile of the distribution but a 6% increase in the investment rate of firms belonging to the last decile.

Keywords: Firms’ investment; Real estate prices; Collateral channel; Financial constraints (search for similar items in EconPapers)
JEL-codes: D22 G30 O52 R30 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-eur and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://cepr.org/publications/DP11883 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Real Estate Prices and Corporate Investment: Theory and Evidence of Heterogeneous Effects across Firms (2019)
Working Paper: Real Estate Prices and Corporate Investment: Theory and Evidence of Heterogeneous Effects across Firms (2019)
Working Paper: Real Estate Prices and Corporate Investment: Theory and Evidence of Heterogeneous Effects across Firms (2019)
Working Paper: Real Estate Prices and Corporate Investment: Theory and Evidence of Heterogeneous Effects across Firms (2018)
Working Paper: Real estate prices and corporate investment: theory and evidence of heterogeneous effects across firms (2017)
Working Paper: Real estate prices and corporate investment: theory and evidence of heterogeneous effects across firms (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:11883

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP11883

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().