How do housing cycles influence listed firms' R&D investment: evidence from the collateral channel

Firm innovation is essential to long-run economic growth. Financially constrained R&D firms may use firm-owned properties as collateral to finance their R&D projects. Therefore, the housing price cycle can affect firms' R&D investment through influencing their real estate value. By examining listed R&D firms during the housing boom period 2002-2006 in the U.S., we find that a $1 increase in real estate value leads a firm to increase its R&D investment by $0.38. We also find that this collateral effect is more pronounced among financially constrained R&D firms than that among unconstrained ones. Additionally, we examine the housing bust period 2008-2012, and find that real estate depreciation retarded R&D investment, especially among constrained R&D firms.