Is There Evidence of a Real Estate Collateral Channel Effect on Listed Firm Investment in China? / Jing Wu, Joseph Gyourko, Yongheng Deng.

Format:

Book

Author/Creator:

Wu, Jing.

Contributor:

National Bureau of Economic Research.

Gyourko, Joseph.

Deng, Yongheng.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18762.

NBER working paper series no. w18762

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

Previous research on the United States and Japan finds economically large impacts of changing real estate collateral value on firm investment. Working with unique data on land values in 35 major Chinese markets and a panel of firms outside the real estate industry, we estimate investment equations that yield no evidence of a collateral channel effect. One reason for this stark difference appears to be that some of the most dominant firms in China are state-owned enterprises (SOEs) which are unconstrained in the sense that they do not need to rely on rising underlying property collateral values to obtain all the financing necessary to carry out their desired investment programs. However, we also find no collateral channel effect for non-SOEs when we perform our analysis on disaggregated sets of firms. Norms and regulation in the Chinese capital markets and banking sector can account for why there is no collateral channel effect operating among these firms. We caution that our results do not mean that there will be no negative fallout from a potential real estate bust on the Chinese economy. There are good reasons to believe there would be, just not through a standard collateral channel effect on firm investment.

Notes:

Print version record

February 2013.