A Rising Tide Lifts All Boats: Influencing Mechanism of Rising Housing Prices on Corporate Financial Business

Abstract

Entrusted loans reflect the “siphon effect” of the virtual economy on the real economy, which affects the allocation efficiency of financial resources and the high-quality development of the whole economy. Entrusted loans are one of the important components of shadow banking in China. Enterprises engaged in entrusted loan business is based on their own and market environment to make decisions. To provide the in-depth understanding of the logic behind the supply of entrusted loans and help to formulate economic policies, this paper examines the market factors that drive enterprises to issue entrusted loans. It first makes a theoretical comparative analysis of the changes of non-financial corporate entity investment income and financial investment income caused by the rise of housing prices. Then, using the manually collected transaction data disclosed in the entrusting loan announcements issued by A-share listed companies in Shanghai and Shenzhen Stock Exchanges and the sales price data of commercial housing in prefectural-level cities during 2007−2015, this paper empirically tests the impact of housing prices on non-financial enterprises engaging in entrusted loan financial business and its mechanism path. It is found that the housing price in the city where the loan enterprise is located increases the probability and quantity of entrusted loans issued by local enterprises. The entrusted loans interest rate is negatively correlated with the housing price in the city where the loan enterprise is located, but positively correlated with the housing price in the city where the borrowing enterprise is located. Further analysis shows that: First, “housing prices go up → corporate profitability falls → the amount of entrusted loans issued by enterprises increases” constitutes a transmission path for housing prices to influence enterprises to issue entrusted loans. Second, enterprises with more investment property assets issue more entrusted loans during the period of rising housing prices. Third, more entrusted loans flow to real estate enterprises during the period of rising housing prices. The above results show that the increase in business costs, the appreciation of real estate mortgage assets, and the high yields of the real estate industry, together boost the development of corporate financial business represented by enterprise entrusted loans.The contributions of this paper mainly include three aspects: First, it studies the entrusted loan behavior of enterprises from the perspective of housing prices, which proves that high housing prices increase the proportion of financial assets in the total assets of enterprises, and cause the distortion of non-financial enterprise entity investment and financial investment. Second, it discusses the influence of the real estate industry from the field of informal finance, which provides empirical evidence for the influence of high housing prices on the allocation of financial resources, helps to fully understand the influence of the real estate industry on all areas of the national economy, and expands the field of real estate economics. Third, it discusses the influencing mechanism of housing prices on the entrusted loans of enterprises, and proves that the rapid rise of housing prices will affect the financial investment behavior of enterprises by increasing the operating burden of enterprises and accelerating the flow of funds from the real economy to the real estate industry. In general, there is a linkage effect between entity enterprises, real estate industries and the shadow banking represented by entrusted loans, which suggests that government departments should be committed to slowly absorbing the bubbles in the real estate economy through the accelerated development of the real economy and the macro-control of the virtual economy.