The Real Economy Effects of the Changes in Real Estate Collateral Value

Zhong Teng

Journal of Finance and Economics Vol. 43, Issue 10, pp. 55 - 66 (2017)  DOI:10.16538/j.cnki.jfe.2017.10.005

Abstract

In the context of intensive real estate regulation and control in China, the quantitative measurement of the impact of changes in real estate collateral value on the real economy is of great significance. This paper employs frontier methods to deeply investigate the impact of changes in real estate collateral value on corporate investment and financing decisions and estimates the potential impact of housing price control policies on aggregate investment. The findings are as follows:firstly, there exists significant collateral effect in China; the rise in collateral value by 1 yuan leads to the increase in capital expenditures by about 5.7 fen; the collateral effect is robust after controlling firm fixed effects or using alternative measures or sub-sample analysis; secondly, at the macro level, the rise in real estate collateral value by 1% results in the increase in aggregate investment by about 46.63 billion yuan; thirdly, the exploration of financing sources shows that collateral appreciation increases firms' access to loans, especially short-term loans; fourthly, the collateral effect is positively related to corporate financial constraints but has no significant relationship with regional financial marketization. Based on these conclusions, it suggests that, when formulating regulatory policies, the governments should not overly suppress housing prices, but should guide housing prices to keep the same pace with consumer prices, reduce their excessive fluctuations, and maintain the long-term stable and healthy development of the real estate market.

Keywords

real estate; collateral effect; corporate investment; land supply elasticity; financial constraint