Quantifying Reduced-Form Evidence on Collateral Constraints

74 Pages Posted: 5 Jun 2016 Last revised: 15 Mar 2021

See all articles by Sylvain Catherine

Sylvain Catherine

University of Pennsylvania - Finance Department

Thomas Chaney

SciencesPo - Sciences Po - Department of Economics; Centre for Economic Policy Research (CEPR)

Zongbo Huang

The Chinese University of Hong Kong, Shenzhen

David Alexandre Sraer

Princeton University; University of California, Berkeley

David Thesmar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: January 31, 2018

Abstract

This paper quantifies the aggregate effects of financing constraints. We start from a standard dynamic model of investment with collateral constraints. In contrast to the existing quantitative literature, our estimation does not target the mean leverage ratio to identify the scope of financing frictions. Instead, we use a reduced-form coefficient from the recent corporate finance literature that connects exogenous shocks to debt capacity to corporate investment. We embed the estimated model in a simple general equilibrium framework and find that, relative to a frictionless benchmark, collateral constraints induce output losses of 7.1%, and TFP (misallocation) losses of 1.4%. We show that these estimated economic losses tend to be more robust to misspecification than estimates obtained by targeting leverage.

Keywords: Structural model, Financing Constraint, Aggregate Implications

JEL Classification: G32, D92, E10

Suggested Citation

Catherine, Sylvain and Chaney, Thomas and Huang, Zongbo and Sraer, David Alexandre and Sraer, David Alexandre and Thesmar, David, Quantifying Reduced-Form Evidence on Collateral Constraints (January 31, 2018). Available at SSRN: https://ssrn.com/abstract=2631055 or http://dx.doi.org/10.2139/ssrn.2631055

Sylvain Catherine

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Thomas Chaney

SciencesPo - Sciences Po - Department of Economics ( email )

28, rue des Saints-Pères
Paris, Paris 75007
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Zongbo Huang

The Chinese University of Hong Kong, Shenzhen ( email )

David Alexandre Sraer

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

David Thesmar (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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