Product Market Effects of Real Estate Collateral
46 Pages Posted: 1 Jun 2015
Date Written: January 1, 2015
This paper exploits shocks to the value of real estate collateral to study how exogenous changes in firms’ external financing capacity affect their competitive performance and industry dynamics. Firms with appreciating collateral tend to gain market share and differentiate themselves from rivals. Shocks to collateral lead to less competitive product markets. The competitive effects of collateral are stronger when a firm competes in more concentrated industries or faces competitors with restricted access to financing. The results are stronger when shocks to real estate are instrumented with local land supply elasticities. These results suggest the importance of strategic effects of collateral.
Keywords: Product market competition; Collateral; Financing capacity; Performance
JEL Classification: G31; G32; G34; L11
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