Housing Collateral and Small Firm Activity in Europe

54 Pages Posted: 25 Aug 2016

See all articles by Ryan Banerjee

Ryan Banerjee

Bank for International Settlements (BIS)

Kristian Blickle

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: August 2016

Abstract

We investigate the importance of the housing-based collateral lending channel on firm borrowing, investment and employment. We focus on small firms in France, Italy, Spain and the United Kingdom. To identify a credit supply effect, as opposed to a home-equity driven demand effect, we compare activity in similar firms that differ by the degree of financial opacity, and therefore the degree of their reliance on collateral to overcome borrowing constraints. We find that changing house prices have a more pronounced effect on borrowing, investment and employment in financially more opaque firms. This relationship is particularly strong in southern Europe (Italy and Spain), where financial frictions are larger and the use of collateral more important.

Keywords: firm financing, capital structure, housing collateral, employment

JEL Classification: G30, G32, O47, R30

Suggested Citation

Banerjee, Ryan and Blickle, Kristian, Housing Collateral and Small Firm Activity in Europe (August 2016). BIS Working Paper No. 575, Available at SSRN: https://ssrn.com/abstract=2829384

Ryan Banerjee (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Kristian Blickle

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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