The Crowding-Out Effect of Real Estate Markets on Corporate Innovation: Evidence from China

Abstract

Real estate bubbles can increase collateral value, thus relaxing financial constraints, which might spur innovation. However, they might also crowd out R&D expenditures, thus stifling corporate innovation. This paper shows that real estate prices negatively affect both corporate R&D and patents in China, suggesting a strong crowding out effect. We further provide suggestive evidence that managerial myopia might partly account for the crowding out effect. Our study illustrates the innovation cost of a booming real estate market.

Keywords: Real Estate Markets, Innovation, Crowding Out Effect, Managerial Myopia, China

JEL Classification: G31, R30, O31, P20, D22