The Speculation Channel and Crowding Out Channel: Real Estate Shocks and Corporate Investment in China*
This paper uses detailed land transaction data of Chinese listed firms from 1998 to 2012 to analyze how real estate shocks affect corporate investment. In addition to the widely documented collateral channel, we also uncover two other channels: rising real estate prices induce more investment in commercial land unrelated to firms' core businesses but reduce non land investment (the speculation channel) rising real estate prices reduce debt capacity and corporate investment of firms without land ownership relative to land holding firms (the crowding out channel) Through these channels, we also find that real estate shocks lead to substantial capital misallocation both within and between firms: a 1 percentage point increase in land price leads to 58 percentage points of TFP losses due to misallocation of capital. We thank Jeffrey Callen, Louis Cheng, Harrison Hong, Ruobing Li, Xuewen Liu, Alexander Ljungqvist, Sheridan Titman, Qian Sun, Kam Ming Wan, Michael Weisbach, Pengfei Wang, Steven Wei, Yong Wang and seminar participants at the Hong Kong Polytechnic University, Shanghai University of Finance and Economics and Shandong University for helpful comments. Hong Kong University of Science and Technology. Email: ctxad@connect.ust.hk. Guanghua School of Management, Peking University. Email: laura.xiaolei.liu@gsm.pku.edu.cn. SS Princeton University and NBER. Email: wxiong@princeton.edu. P Guanghua School of Management, Peking University, zhoula@gsm.pku.edu.cn.