Housing Market Speculation and Firm Productivity: Evidence from China

摘要

An appreciation in the price of housing could generate speculation opportunities for enterprises. Many firms try to seize these opportunities for quick returns. This may harm their productivity. We use the real estate boom and the investment activities of Chinese manufacturing firms during 2006-2017 to examine the processes and the net effect of housing market speculation on firm productivity. We find that housing market speculation negatively affects firm productivity by crowding out investments in research and development and productive fixed assets, and the positive effect brought about by a strengthened balance sheet and better financing capacity is outweighed by the crowding-out effect. This negative impact is more evident in state-owned firms, but is mitigated in regions and periods with better business environments. Set in the overheated housing market in China, our study contributes to the existing literature by exploring how firms' investments outside of their main business influence firm behavior and productivity.