Quantifying Reduced-Form Evidence on Collateral Constraints

Sylvain Catherine (1) , Thomas Chaney (2) , Zongbo Huang (3) , David Sraer (4) , David Thesmar (5)

1 University of Pennsylvania
2 ECON - Département d'économie (Sciences Po)
3 The Chinese University of Hong Kong [Hong Kong]
4 Princeton University
5 HEC Lausanne - Faculté des Hautes Etudes Commerciales (HEC Lausanne)

While a mature literature shows that credit constraints causally affect firm level investment, this literature provides little guidance to quantify the economic effects implied by these findings. Our paper attempts to fill this gap in two ways. First, we use a structural model of firm dynamics with collateral constraints, and estimate the model to match the firm-level sensitivity of investment to collateral values. We estimate that firms can only pledge about 19% of their collateral value. Second, we embed this model in a general equilibrium framework and estimate that, relative to first-best, collateral constraints are responsible for 11% output losses.

Domains: Economics and Finance

Sylvain Catherine, Thomas Chaney, Zongbo Huang, David Sraer, David Thesmar. Quantifying Reduced-Form Evidence on Collateral Constraints. 2018. ⟨hal-03393129⟩