Why Did ‘Zombie’ Firms Recover in Japan?
AbstractThe Japanese economy experienced prolonged recessions during the 1990s. Previous studies suggest that evergreen lending to troubled firms known as ?zombie firms? distorted market discipline in terms of stabilizing the Japanese economy and caused significant delays in the economy?s recovery. However, the eventual bankruptcy of zombies was rare. In fact, a majority of the ?zombie? firms substantially recovered during the first half of the 2000s. The purpose of this paper is to investigate why zombie firms recovered in Japan. We first extend the method of Caballero, Hoshi, and Kashyap (2008) and identify zombies from among the listed firms. Subsequently, we investigate the nature of corporate restructuring that was effective in reviving zombie firms. Our multinomial logistic regressions suggest that reducing the employee strength of zombie firms and selling its fixed assets were beneficial in facilitating their recovery. However, corporate restructuring without accounting transparency or by discouraging incentives for managers was ineffective. In addition, corporate restructuring lacked effectiveness in the absence of favorable macroeconomic environment as well as substantial external financial support.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal The World Economy.
Volume (Year): 34 (2011)
Issue (Month): (07)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0378-5920
Other versions of this item:
- Shin-ichi Fukuda & Jun-ichi Nakamura, 2010. "Why Did ?Zombie? Firms Recover in Japan?," CARF F-Series CARF-F-224, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- Shin-ichi Fukuda & Jun-ichi Nakamura, 2010. "Why Did "Zombie" Firms Recover in Japan?," CIRJE F-Series CIRJE-F-751, CIRJE, Faculty of Economics, University of Tokyo.
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- Kentaro Imai, 2013. "A Panel Study of eZombief SMEs in Japan: Identification, Borrowing and Investment Behavior," Discussion Papers in Economics and Business 13-16, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
- Emmanuel De Veirman & Andrew T. Levin, 2012.
"When Did Firms Become More Different? Time-Varying Firm-Specific Volatility in Japan,"
CAMA Working Papers
2012-43, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- De Veirman, Emmanuel & Levin, Andrew T., 2012. "When did firms become more different? Time-varying firm-specific volatility in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 578-601.
- Emmanuel de Veirman & Andrew Levin, 2012. "When Did Firms Become More Different? Time-Varying Firm-Specific Volatility in Japan," DNB Working Papers 351, Netherlands Central Bank, Research Department.
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