Ratios of Changes: How Real Estate Shocks Did Not Affect Corporate Investment

55 Pages Posted: 4 Jun 2020 Last revised: 5 Aug 2020

See all articles by Ivo Welch

Ivo Welch

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Date Written: August 4, 2020

Abstract


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

Welch, Ivo, Ratios of Changes: How Real Estate Shocks Did Not Affect Corporate Investment (August 4, 2020). Available at SSRN: https://ssrn.com/abstract=3599280 or http://dx.doi.org/10.2139/ssrn.3599280

Ivo Welch (Contact Author)

University of California, Los Angeles (UCLA) ( email )

110 Westwood Plaza
C519
Los Angeles, CA 90095-1481
United States
310-825-2508 (Phone)

HOME PAGE: http://www.ivo-welch.info

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
236
Abstract Views
1,059
rank
145,101
PlumX Metrics