Local Capital Scarcity and Small Firm Growth: Evidence from Real Estate Booms in China

69 Pages Posted: 15 Nov 2019

See all articles by Harald Hau

Harald Hau

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Difei Ouyang

University of Geneva - Geneva School of Economics and Management

Multiple version iconThere are 2 versions of this paper

Date Written: 2019

Abstract

In geographically segmented credit markets, local real estate booms can deteriorate the funding conditions for small manufacturing firms and undermine their competitiveness. Using exogenous variation in the administrative land supply across 172 Chinese cities, we show that higher predicted real estate prices cause higher borrowing costs for small manufacturing firms, reduce their bank lending, lower their investment rate and labor productivity, and reduce their output and TFP growth by economically significant magnitudes. These effects are absent in large and listed companies with access to the national capital market. The evidence highlights the benefits of financial market integration.

Keywords: factor price externalities, real estate booms, firm growth, financial constraints

JEL Classification: D220, D240, R310

Suggested Citation

Hau, Harald and Ouyang, Difei, Local Capital Scarcity and Small Firm Growth: Evidence from Real Estate Booms in China (2019). CESifo Working Paper No. 7928, Available at SSRN: https://ssrn.com/abstract=3485477

Harald Hau (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute

Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Difei Ouyang

University of Geneva - Geneva School of Economics and Management ( email )

Bd du Pont d'Arve 42
Genève, GA CH - 1211
Switzerland
+41789451656 (Phone)

HOME PAGE: http://sites.google.com/site/ouyangdifei/research

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