Collateral Shocks and Corporate Employment. (16th November 2018)

• Record Type: Journal Article
• Authors: Ersahin, Nuri; Irani, Rustom M
• Is Part Of: Review of finance. Volume 24:Number 1(2020)
• Page Start: 163
• Page End: 187
• Publication Date: 2018-11-16
• Subjects: E44 -- G31 -- G32; Credit constraints -- Collateral lending channel -- Employment -- Real estate; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfy036
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: We analyze how firm-level shocks to collateral values influence employment outcomes among US corporations. Using comprehensive employment data from the US Census Bureau, we estimate that employment expenditures increase by $0.10 per $1 increase in firms' real estate collateral values. These effects are stronger among financially constrained firms, and additional hiring is funded through debt issuance, consistent with a collateral channel. This relation holds among firms in tradable goods sectors, alleviating concerns about local demand shocks. Thus, through a collateral lending channel, fluctuations in the US commercial real estate market are an important driver of corporate labor demand.