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Quantifying Reduced-Form Evidence on Collateral Constraints

Author

Listed:
  • Sylvain Catherine

    (University of Pennsylvania)

  • Thomas Chaney

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Zongbo Huang

    (CUHK - The Chinese University of Hong Kong [Hong Kong])

  • David Sraer

    (Princeton University)

  • David Thesmar

    (HEC Lausanne - Faculté des Hautes Etudes Commerciales (HEC Lausanne))

Abstract
While a mature literature shows that credit constraints causally affect firm level investment, this literature provides little guidance to quantify the economic effects implied by these findings. Our paper attempts to fill this gap in two ways. First, we use a structural model of firm dynamics with collateral constraints, and estimate the model to match the firm-level sensitivity of investment to collateral values. We estimate that firms can only pledge about 19% of their collateral value. Second, we embed this model in a general equilibrium framework and estimate that, relative to first-best, collateral constraints are responsible for 11% output losses.

Suggested Citation

  • Sylvain Catherine & Thomas Chaney & Zongbo Huang & David Sraer & David Thesmar, 2018. "Quantifying Reduced-Form Evidence on Collateral Constraints," SciencePo Working papers hal-03393129, HAL.
    • Handle: RePEc:hal:wpspec:hal-03393129
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03393129
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    8. Natalie Bau & Adrien Matray, 2020. "Misallocation and Capital Market Integration: Evidence from India," Working Papers 263, Princeton University, Department of Economics, Center for Economic Policy Studies..
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