Is There Evidence of a Real Estate Collateral Channel Effect on Listed Firm Investment in China?

56 Pages Posted: 2 Feb 2013

See all articles by Jing Wu

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate; Tsinghua University - Department of Construction Management

Joseph Gyourko

University of Pennsylvania - Real Estate Department; National Bureau of Economic Research (NBER)

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Date Written: February 2013

Abstract

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.

Suggested Citation

Wu, Jing and Gyourko, Joseph E. and Deng, Yongheng, Is There Evidence of a Real Estate Collateral Channel Effect on Listed Firm Investment in China? (February 2013). NBER Working Paper No. w18762. Available at SSRN: https://ssrn.com/abstract=2210781

Jing Wu (Contact Author)

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Tsinghua University - Department of Construction Management ( email )

Heshanheng Building
Tsinghua University
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Joseph E. Gyourko

University of Pennsylvania - Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States
215-898-3003 (Phone)
215-573-2220 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

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