Ratios of Changes: How Real Estate Shocks Did Not Affect Corporate Investment
55 Pages Posted: 4 Jun 2020 Last revised: 5 Aug 2020
Date Written: August 4, 2020
Real-estate price shocks did not positively associate with corporate investment from 1992 to 2008, as suggested by Chaney, Sraer, and Thesmar (2012). Most of their coefficients explain changes in their firm-scale normalization (PP&E), not changes in their variables of interest (real-estate and investment). This problem cannot be cured by an additive 1/PP&E control. By working with “ratios of changes” instead of “changes of ratios,” denominator-caused scaling volatility can be purged, and their estimated coefficients then turn negative. My paper also discusses the lack of shock identification and the effects of time trends. A sample extended to 2018 also shows no effect.
Keywords: collateral, real-estate, corporate investment
JEL Classification: D22 G31 R30
Suggested Citation: Suggested Citation