Can real estate booms hurt firms? Evidence on investment substitution

In geographically segmented credit markets, local real estate booms can deteriorate the funding conditions for small manufacturing firms and undermine their growth and competitiveness. Based on exogenous variations in the administrative land supply for residential housing across Chinese cities, we s...

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Bibliographic Details
Published in:Journal of urban economics 2024-11, Vol.144, p.103695, Article 103695
Main Authors: Hau, Harald, Ouyang, Difei
Format: Article
Language:English
Subjects:
Factor price externalities
Financial constraints
Firm growth
Real estate booms
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Summary:In geographically segmented credit markets, local real estate booms can deteriorate the funding conditions for small manufacturing firms and undermine their growth and competitiveness. Based on exogenous variations in the administrative land supply for residential housing across Chinese cities, we show that real estate price hikes caused by a restrictive land supply reduce bank credit to manufacturing firms, raise their borrowing costs, diminish their investment rate, compromise their output and productivity growth, and increase their exit rates. Such harmful effects are more pronounced among small firms and those located in more bank-dependent regions.
ISSN:0094-1190
DOI:10.1016/j.jue.2024.103695