Fear the Walking Dead?Incidence and Effects of Zombie Firms in Europe

One explanation for the observed lack of economic dynamism in Europe is that so-called zombie firms are spreading and that they crowd out the growth of other,potentially more"lively",companies.Zombie firms are firms that apparently are unable to repay their debt and yet,they continue operating.The report describes estimates for 2010 and 2013 of the incidence of zombie firms across 19 European countries using firm-level data for more than one million companies.Importantly,it uses three alternative definitions of what constitutes a zombie firm to ensure robustness of estimates.The report finds that zombie firms are spreading in Europe,with the estimated incidence for 2013 being higher than for 2010.It also identifies considerable differences across countries.Zombie firm shares as of overall corporate capital are particularly high in Greece and Spain,but low in the Czech Republic and Slovakia.Distinguish among firms in terms of size and age,the report finds that larger and older firms,as compared to relatively smaller and younger firms,are more likely to be zombie firms.The report also finds that the growth of zombie firms in terms of employment crowds out the growth of other,non-zombie firms,especially young ones.Thus,one policy implication is that,greater economic activity is achieved by allowing zombie firms to exit the market.

FinTech Can Prevent the Formation of Zombie Firms:Evidence from China

The interplay between financial technology(FinTech)and real economy firms has garnered considerable attention.This paper explores the relationship and mechanism between FinTech and corporate zombification using the data of Chinese A-share listed firms in China from 2011 to 2021.The research findings reveal that FinTech significantly inhibits firm zombification,and FinTech breadth and depth both play a significant role in restraining firm zombification.Mechanism exploration indicates that,on the one hand,FinTech reduces friction in the financial market,inhibiting firm zombification by improving firm investment efficiency,especially alleviating under-investment.On the other side,FinTech indirectly affects the technological investment,production,and operation of firms,thereby inhibiting firm zombification by increasing their total factor productivity.Heterogeneity analysis suggests that the inhibitory effect of FinTech on corporate zombification is more pronounced for non-stateowned firms and small-sized firms,as well as those in manufacturing industries and highly competitive industries.This paper provides some novel evidence on evaluating the effect of FinTech on firms and also offers new insights for efficient governance of zombie firms.

Can Trade Facilitation Prevent the Formation of Zombie Firms?Evidence from the China Railway Express

Using data on firms listed on Chinese A-share markets from 2009 to 2017,this paperapplies the difference-in-difference model to test the effect of trade facilitation onpreventing the formation of zombie firms.We find that the China Railway Express(CRE)significantly prevented the formation of such firms.Mechanism tests show:(i)the CRE has accelerated the speed of sales,which increased the overseas salesrevenue of firms;(ii)the economies of scale and the capital accumulation effectcaused by the CRE can help increase firms'solvency and development ability.Heterogeneity analysis indicates that the effect of the CRE on preventing theformation of zombie firms is mainly reflected in non-state-owned firms,firms inhighly competitive industries,and firms in the eastern region of China.We suggestthat China should continue to promote trade facilitation by expanding the CRE andstrengthening the market's dominant role in preventing the formation of zombie firms.Disadvantaged firms should seize the development opportunities brought by the CRE.

Monetary policy, financial development and the financing of zombie firms: evidence from China

This paper examines the financing channels for zombie firms in China.We find that equity markets and suppliers provide substan-tial financing support for zombie firms,while banks and other financing channels are less important.We also find that the amount of investment does not increase accordingly after zombie firms obtain external financing,which indicates an inefficient use of funds by these zombie firms.Our results are robust to various definitions of zombie firms,and also to a propensity score match-ing method.

Are zombie firms more incentivized to financialize?

This paper investigates whether zombie firms demonstrate a tendency to invest in the financial sector,a practice we term financialization strategy.Unlike those in the United States,Japan,and Europe,we find that zombie firms in China are not necessarily small and that they rely heavily on government subsidies in addition to bank loans for survival.In addition,we document that zombie firms in China experience limited investment opportunities in their core businesses.This combination of readily available funding and limited investment opportunities jointly motivate the financialization of firms with zombie status.We further find that financialization is preferred by non-state-owned firms and by those located in regions with less developed markets.Finally,we suggest that a contagion effect can occur in terms of financialization in provinces that have a high percentage of zombie firms.This research sheds light on the effects of a triangular relationship among firms,government agencies,and financial institutions on both the operations of individual firms and overall market efficiency.