Housing Cycle and Firm Investment: International Firm-level Evidence

Hyunduk Suh
Jin Young Yang

Document Type

Article

Source of Publication

SSRN Electronic Journal

Publication Date

1-1-2020

Abstract

We analyze international firm-level data to examine the relationship between housing cycle and firm capital expenditure or R&D spending. We use the housing price component independent of firms’ investment opportunity and credit supply shocks, obtained by historical decomposition of a structural VAR, as the key explanatory variable. The baseline results support the existence of the collateral channel as housing price growth and firm investment exhibit a positive relationship. This collateral channel is more distinct for capital expenditure than R&D spending, and in housing market downturns than booms. Another notable finding is that despite the collateral channel, large housing price booms are detrimental to investment, which suggests a possible reallocation of resources from the production sector to the housing sector during those phases. Moreover, various firm-specific and country-specific characteristics are found to affect the housing price-investment relationship. Small firms and firms with stronger investment opportunities respond more sensitively to housing price shocks. Countries that rely more on bank financing, collateralized lending, and with higher LTV restraint, display a larger collateral effect in capital expenditure.

ISSN

1556-5068

Publisher

Elsevier BV

Disciplines

Business

Indexed in Scopus

no

Open Access

yes

Open Access Type

Green: A manuscript of this publication is openly available in a repository

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