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David Thesmar - One of the best experts on this subject based on the ideXlab platform.
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response to welch 2020 real estate collateral does affect Corporate Investment
2020Co-Authors: Thomas Chaney, David Sraer, David ThesmarAbstract:This short note is a response to Welch (2020), who claims that our results in Chaney, Sraer and Thesmar (2012) are not robust. We show that none of his findings invalidate our results. Welch makes three major points. First, he correctly points out that our baseline specification uses a common scaling factor (lagged capital stock) for our dependent (Investment) and independent (real estate collateral) variables, creating a mechanical correlation between left- and right-hand side variables. We show in this note that, while this point is formally correct, our results are robust to controlling for or removing entirely this mechanical correlation. Second, Welch correctly, stresses that real estate prices are serially correlated, so that identification of a real estate collateral channel is potentially complex. We show in this note that our results are robust to controlling for the serial correlation in real estate prices. Third, Welch correctly worries about the fact that real estate prices are driven not just by local shocks (MSA or State), but also by common shocks (national). We show in this note that our results are robust to controlling for common national real estate shocks. In other words, while we recognize that Welch raises several important points, we argue that none of those results invalidate the baseline findings in Chaney, Sraer and Thesmar (2012). Yet, some of these objections suggest interesting leads for further analysis on Corporate Investment. We describe these leads in the note, hoping that they will inspire future research.
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the collateral channel how real estate shocks affect Corporate Investment
The American Economic Review, 2012Co-Authors: Thomas Chaney, David Sraer, David ThesmarAbstract:Abstract What is the impact of real estate prices on Corporate Investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate Investment. To compute the sensitivity of Investment to collateral value, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. Over the 1993–2007 period, the representative US corporation invests $0.06 out of each $1 of collateral. (JEL D22, G31, R30)
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the collateral channel how real estate shocks affect Corporate Investment
Sciences Po publications, 2012Co-Authors: Thomas Chaney, David Sraer, David ThesmarAbstract:What is the impact of real estate prices on Corporate Investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate Investment. To compute the sensitivity of Investment to collateral value, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. Over the 1993-2007 period, the representative US corporation invests $0.06 out of each $1 of collateral.
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the collateral channel how real estate shocks affect Corporate Investment
National Bureau of Economic Research, 2010Co-Authors: Thomas Chaney, David Sraer, David ThesmarAbstract:What is the impact of real estate prices on Corporate Investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate Investment. Over the 1993-2007 period, the representative U.S. corporation invests 6 cents out of each additional dollar of collateral. To compute this sensitivity, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. We address the endogeneity of local real estate prices using the interaction of interest rates and local constraints on land supply as an instrument. We address the endogeneity of the decision to own land (1) by controlling for observable determinants of ownership and (2) by looking at the Investment behavior of firms before and after they acquire land. The sensitivity of Investment to collateral value is stronger the more likely a firm is to be credit constrained.
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the collateral channel how real estate shocks affect Corporate Investment
2009Co-Authors: Thomas Chaney, David Sraer, David ThesmarAbstract:What is the impact of real estate prices on Corporate Investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate Investment. Over the 1993-2007 period, the representative U.S. corporation borrows 4 cents of new debt, and invests 6 cents out of each additional dollar of collateral. To compute this sensitivity, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. We address the endogeneity of local real estate prices using the interaction of interest rates and local constraints on land supply as an instrument. We address the endogeneity of the decision to own land (1) by controlling for observable determinants of ownership and (2) by looking at the Investment behavior of firms before and after they acquire land. The sensitivity of Investment to collateral value is stronger the more likely a firm is to be credit constrained.
Howard Kung - One of the best experts on this subject based on the ideXlab platform.
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the asset redeployability channel how uncertainty affects Corporate Investment
Review of Financial Studies, 2017Co-Authors: Hyunseob Kim, Howard KungAbstract:This paper examines how uncertainty affects Corporate Investment under varying degrees of asset redeployability. We develop new measures of asset redeployability by accounting for the usability of assets within and across industries. We identify plausibly exogenous shocks to economic uncertainty by using major economic and political events. We find that after an increase in uncertainty, firms using less redeployable capital reduce Investment more. More redeployable assets exhibit higher recovery rates and are traded more actively in secondary markets. Overall, our results suggest that frictions in redeploying assets affect liquidation values and therefore make firms cautious about Investment decisions under uncertainty.
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the asset redeployability channel how uncertainty affects Corporate Investment
Social Science Research Network, 2016Co-Authors: Hyunseob Kim, Howard KungAbstract:This paper examines how uncertainty affects Corporate Investment under varying degrees of asset redeployability. We develop new measures of asset redeployability by accounting for the usability of assets within and across industries. We identify plausibly exogenous shocks to economic uncertainty by using major economic and political events. We find that after an increase in uncertainty, firms using less redeployable capital reduce Investment more. More redeployable assets exhibit higher recovery rates and are traded more actively in secondary markets. Overall, our results suggest that frictions in redeploying assets significantly affect liquidation values and therefore make firms cautious about Investment decisions.
Murillo Campello - One of the best experts on this subject based on the ideXlab platform.
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liquidity management and Corporate Investment during a financial crisis
Review of Financial Studies, 2011Co-Authors: Murillo Campello, Erasmo Giambona, John R Graham, Campbell R HarveyAbstract:This article uses a unique dataset to study how firms managed liquidity during the 2008- 2009 financial crisis. Our analysis provides new insights on interactions between internal liquidity, external funds, and real Corporate decisions, such as Investment and employment. We first describe how companies used credit lines during the crisis (access, size of facilities, and drawdown activity), the characteristics of these facilities (fees, markups, maturity, and collateral), and whether managers had difficulties in renewing or initiating lines. We also describe the dynamics of credit line violations and the outcome of subsequent renegotiations. We show how companies substitute between credit lines and internal liquidity (cash and profits) when facing a severe credit shortage. Looking at real-side decisions, we find that credit lines are associated with greater spending when companies are not cashstrapped. Firms with limited access to credit lines, in contrast, appear to choose between saving and investing during the crisis. Our evidence indicates that credit lines eased the impact of the financial crisis on Corporate spending.
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liquidity management and Corporate Investment during a financial crisis
Social Science Research Network, 2010Co-Authors: Murillo Campello, Erasmo Giambona, John R Graham, Campbell R HarveyAbstract:This paper uses a unique dataset to study how firms managed liquidity during the 2008-09 financial crisis. Our analysis provides new insights on interactions between internal liquidity, external funds, and real Corporate decisions, such as Investment and employment. We first describe how companies used credit lines during the crisis (access, size of facilities, and drawdown activity), the characteristics of these facilities (fees, markups, maturity, and collateral), and whether managers had difficulties in renewing or initiating lines. We also describe the dynamics of credit line violations and the outcome of subsequent renegotiations. We show how companies substitute between credit lines and internal liquidity (cash and profits) when facing a severe credit shortage. Looking at real-side decisions, we find that credit lines are associated with greater spending when companies are not cash-strapped. Firms with limited access to credit lines, on the other hand, appear to choose between saving and investing during the crisis. Our evidence indicates that credit lines eased the impact of the financial crisis on Corporate spending.
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liquidity management and Corporate Investment during a financial crisis
National Bureau of Economic Research, 2010Co-Authors: Murillo Campello, Erasmo Giambona, John R Graham, Campbell R HarveyAbstract:This paper uses a unique dataset to study how firms managed liquidity during the financial crisis. Our analysis provides new insights on the interactions between internal liquidity, external funds, and real Corporate decisions, such as Investment and employment. We first describe how companies used credit lines during the crisis (access, size of facilities, and drawdown activity), the conditions under which these facilities were granted (fees, markups, maturity, and collateral), and whether managers had difficulties in renewing or initiating lines. We also describe the dynamics of credit line violations and the outcome of subsequent renegotiations. We show how companies substitute between credit lines and internal liquidity (cash and profits) when facing a severe credit shortage. Looking at real-side decisions, we find that credit lines are associated with greater spending when companies are not cash-strapped. Firms with limited access to credit lines, on the other hand, appear to choose between saving and investing during the crisis. Our evidence indicates that credit lines eased the impact of the financial crisis on Corporate spending.
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financial constraints asset tangibility and Corporate Investment
Review of Financial Studies, 2007Co-Authors: Heitor Almeida, Murillo CampelloAbstract:This paper proposes a new strategy to identify the eect of …nancial constraints on Corporate Investment. When …rms are able to pledge their assets as collateral, Investment and borrowing become endogenous: pledgeable assets support more borrowings that in turn allow for further Investments in pledgeable assets. We show that this credit multiplier has a …rst-order eect on Investment when …rms face …nancing frictions. In particular, Investment-cash ‡ow sensitivities will be increasing in the degree of tangibility of constrained …rms' assets. When …rms are unconstrained, in contrast, Investment-cash ‡ow sensitivities are unaected by asset tangibility. This theoretical prediction allows us to use a "dierences in dierences" approach to identify the eect of …nancing frictions on Corporate Investment: we compare the dierential (marginal) eect of asset tangibility on the sensitivity of Investment to cash ‡ow across dierent regimes of …nancial constraints. Using two layers of cross-sectional contrasts sidesteps concerns that cash ‡ows might correlate with a …rm's (residual) Investment opportunities when Q fails as a control. We implement our testing strategy on a large sample of …rms drawn from COMPUSTAT between 1971 and 2000. The data strongly support our hypothesis about the role of asset tangibility on Corporate Investment under …nancial constraints.
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financial constraints asset tangibility and Corporate Investment
National Bureau of Economic Research, 2006Co-Authors: Heitor Almeida, Murillo CampelloAbstract:When firms are able to pledge their assets as collateral, Investment and borrowing become endogenous: pledgeable assets support more borrowings that in turn allow for further Investment in pledgeable assets. We show that this credit multiplier has an important impact on Investment when firms face credit constraints: Investment-cash flow sensitivities are increasing in the degree of tangibility of constrained firms' assets. If firms are unconstrained, however, Investment-cash flow sensitivities are unaffected by asset tangibility. Crucially, asset tangibility itself may determine whether a firm faces credit constraints - firms with more tangible assets may have greater access to external funds. This implies that the relationship between capital spending and cash flows is non-monotonic in the firm's asset tangibility. Our theory allows us to use a differences-in-differences approach to identify the effect of financing frictions on Corporate Investment: we compare the differential effect of asset tangibility on the sensitivity of Investment to cash flow across different regimes of financial constraints. We implement this testing strategy on a large sample of manufacturing firms drawn from COMPUSTAT between 1985 and 2000. Our tests allow for the endogeneity of the firm's credit status, with asset tangibility influencing whether a firm is classified as credit constrained or unconstrained in a switching regression framework. The data strongly support our hypothesis about the role of asset tangibility on Corporate Investment under financial constraints.
Roni Michaely - One of the best experts on this subject based on the ideXlab platform.
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do dividend taxes affect Corporate Investment
Journal of Public Economics, 2017Co-Authors: Annette Alstadsaeter, Martin Jacob, Roni MichaelyAbstract:Abstract We test whether dividend taxes affect Corporate Investments. We exploit Sweden's 2006 dividend tax cut of 10 percentage points for closely held corporations and 5 percentage points for widely held corporations. Using rich administrative panel data and triple-difference estimators, we find that this dividend tax cut does not affect aggregate Investment but that it affects the allocation of Corporate Investment. Cash-constrained firms increase Investment after the dividend tax cut relative to cash-rich firms. Reallocation is stronger among closely held firms that experience a larger tax cut. This result is explained by higher external equity in cash-constrained firms and by higher dividends in cash-rich firms after the tax cut.
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do dividend taxes affect Corporate Investment
Social Science Research Network, 2015Co-Authors: Annette Alstadsaeter, Martin Jacob, Roni MichaelyAbstract:We test whether dividend taxes affect Corporate Investments. We exploit Sweden’s 2006 dividend tax cut of 10 percentage points for closely held corporations and five percentage points for widely held corporations. Using rich administrative panel data and triple-difference estimators, we find that this dividend tax cut does not affect aggregate Investment but that it affects the allocation of Corporate Investment. Cash-constrained firms increase Investment after the dividend tax cut relative to cash-rich firms. Reallocation is stronger among closely held firms that experience a larger tax cut. This result is explained by higher external equity in cash-constrained firms and by higher dividends in cash-rich firms after the tax cut. The heterogeneous Investment responses imply that the dividend tax cut raises efficiency by improving allocation of Investment.
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do dividend taxes affect Corporate Investment
Research Papers in Economics, 2014Co-Authors: Annette Alstadsaeter, Martin Jacob, Roni MichaelyAbstract:We test whether dividend taxes affect Corporate Investments. We exploit Sweden's 2006 dividend tax cut of 10 percentage points for closely held corporations and five percentage points for widely held corporations. Using rich administrative panel data and triple-difference estimators, we find that this dividend tax cut affects allocation of Corporate Investment. Cashconstrained firms increase Investment after the dividend tax cut relative to cash-rich firms. Reallocation is stronger among closely held firms that experience a larger tax cut. This result is explained by higher nominal equity in cash-constrained firms and by higher dividends in cash-rich firms after the tax cut. The heterogeneous Investment responses imply that the dividend tax cut raises efficiency by improving allocation of Investment.
Thomas Chaney - One of the best experts on this subject based on the ideXlab platform.
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response to welch 2020 real estate collateral does affect Corporate Investment
2020Co-Authors: Thomas Chaney, David Sraer, David ThesmarAbstract:This short note is a response to Welch (2020), who claims that our results in Chaney, Sraer and Thesmar (2012) are not robust. We show that none of his findings invalidate our results. Welch makes three major points. First, he correctly points out that our baseline specification uses a common scaling factor (lagged capital stock) for our dependent (Investment) and independent (real estate collateral) variables, creating a mechanical correlation between left- and right-hand side variables. We show in this note that, while this point is formally correct, our results are robust to controlling for or removing entirely this mechanical correlation. Second, Welch correctly, stresses that real estate prices are serially correlated, so that identification of a real estate collateral channel is potentially complex. We show in this note that our results are robust to controlling for the serial correlation in real estate prices. Third, Welch correctly worries about the fact that real estate prices are driven not just by local shocks (MSA or State), but also by common shocks (national). We show in this note that our results are robust to controlling for common national real estate shocks. In other words, while we recognize that Welch raises several important points, we argue that none of those results invalidate the baseline findings in Chaney, Sraer and Thesmar (2012). Yet, some of these objections suggest interesting leads for further analysis on Corporate Investment. We describe these leads in the note, hoping that they will inspire future research.
-
the collateral channel how real estate shocks affect Corporate Investment
The American Economic Review, 2012Co-Authors: Thomas Chaney, David Sraer, David ThesmarAbstract:Abstract What is the impact of real estate prices on Corporate Investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate Investment. To compute the sensitivity of Investment to collateral value, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. Over the 1993–2007 period, the representative US corporation invests $0.06 out of each $1 of collateral. (JEL D22, G31, R30)
-
the collateral channel how real estate shocks affect Corporate Investment
Sciences Po publications, 2012Co-Authors: Thomas Chaney, David Sraer, David ThesmarAbstract:What is the impact of real estate prices on Corporate Investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate Investment. To compute the sensitivity of Investment to collateral value, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. Over the 1993-2007 period, the representative US corporation invests $0.06 out of each $1 of collateral.
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the collateral channel how real estate shocks affect Corporate Investment
National Bureau of Economic Research, 2010Co-Authors: Thomas Chaney, David Sraer, David ThesmarAbstract:What is the impact of real estate prices on Corporate Investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate Investment. Over the 1993-2007 period, the representative U.S. corporation invests 6 cents out of each additional dollar of collateral. To compute this sensitivity, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. We address the endogeneity of local real estate prices using the interaction of interest rates and local constraints on land supply as an instrument. We address the endogeneity of the decision to own land (1) by controlling for observable determinants of ownership and (2) by looking at the Investment behavior of firms before and after they acquire land. The sensitivity of Investment to collateral value is stronger the more likely a firm is to be credit constrained.
-
the collateral channel how real estate shocks affect Corporate Investment
2009Co-Authors: Thomas Chaney, David Sraer, David ThesmarAbstract:What is the impact of real estate prices on Corporate Investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate Investment. Over the 1993-2007 period, the representative U.S. corporation borrows 4 cents of new debt, and invests 6 cents out of each additional dollar of collateral. To compute this sensitivity, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. We address the endogeneity of local real estate prices using the interaction of interest rates and local constraints on land supply as an instrument. We address the endogeneity of the decision to own land (1) by controlling for observable determinants of ownership and (2) by looking at the Investment behavior of firms before and after they acquire land. The sensitivity of Investment to collateral value is stronger the more likely a firm is to be credit constrained.
