Journal of Finance Vol. 77 No. 4 2022

Quantifying Reduced‐Form Evidence on Collateral Constraints

Sylvain Catherine¹; Thomas Chaney^2,3,4; Zongbo Huang^5,6; David Sraer^7,4,8; David Thesmar^9,7,10,4,11

¹ University of Pennsylvania · ² University of Southern California · ³ Institut d'Etudes Politiques de Paris · ⁴ Centre for Economic Policy Research · ⁵ Chinese University of Hong Kong · ⁶ Shenzhen University · ⁷ National Bureau of Economic Research · ⁸ University of California, Berkeley · ⁹ Center for Economic and Policy Research · ¹⁰ Chinese University of Hong Kong, Shenzhen · ¹¹ Massachusetts Institute of Technology

Abstract

This paper quantifies the aggregate effects of financing constraints. We start from a standard dynamic investment model with collateral constraints. In contrast to the existing quantitative literature, our estimation does not target the mean leverage ratio to identify the scope of financing frictions. Instead, we use a reduced‐form coefficient from the recent corporate finance literature that connects exogenous debt capacity shocks to corporate investment. Relative to a frictionless benchmark, collateral constraints induce losses of 7.1% for output and 1.4% for total factor productivity (TFP) (misallocation). We show these estimated losses tend to be more robust to misspecification than estimates obtained by targeting leverage.

DOI

10.1111/jofi.13158

Volume

77

Issue

4

Pages

2143-2181

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

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