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Zombie Firms and Economic Stagnation in Japan

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Author Info
Alan G. Ahearne
Naoki Shinada

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Abstract

It is often claimed that one contributing factor to Japan's weak economic performance over the past decade is that Japanese banks have continued to provide financial support for highly inefficient, debt-ridden companies, commonly referred to as "zombie" firms. Such poor banking practices in turn prevent more productive companies from gaining market share, strangling a potentially important source of productivity gains for the overall economy. To explore further the zombie-firm hypothesis, we use industry- and firm-level Japanese data and find evidence that productivity growth is low in industries reputed to have heavy concentrations of zombie firms. We also find that the reallocation of market share is going in the wrong direction in these industries, adding to already weak productivity performance. In addition, we find evidence that financial support from Japanese banks may have played a role in sustaining this perverse reallocation of market share.

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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d05-95.

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Date of creation: Jun 2005
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Handle: RePEc:hst:hstdps:d05-95

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Keywords: Productivity; banking system; creative destruction;

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  2. Joe Peek & Eric S. Rosengren, 2003. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," NBER Working Papers 9643, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Smith, David C., 2003. "Loans to Japanese borrowers," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 283-304, September. [Downloadable!] (restricted)
  4. John C. Haltiwanger, 1997. "Measuring and analyzing aggregate fluctuations: the importance of building from microeconomic evidence," Review, Federal Reserve Bank of St. Louis, issue May, pages 55-78. [Downloadable!]
  5. John Haltiwanger & C J Krizan & Lucia Foster, 1998. "Aggregate Productivity Growth: Lessons From Microeconomic Evidence," Working Papers 98-12, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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  6. David C. Smith, 2003. "Loans to Japanese borrowers," International Finance Discussion Papers 769, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2006. "Zombie Lending and Depressed Restructuring in Japan," NBER Working Papers 12129, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Se-Jik Kim, 2003. "Macro Effects of Corporate Restructuring in Japan," IMF Working Papers 03/203, International Monetary Fund. [Downloadable!]
  9. Takeo Hoshi & Anil K. Kashyap, 1990. "Evidence on q and investment for Japanese firms," Finance and Economics Discussion Series 136, Board of Governors of the Federal Reserve System (U.S.).
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  10. Takeo Hoshi & Anil Kashyap, 1999. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Working Papers 7250, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-53, May. [Downloadable!] (restricted)
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  12. Bee Yan Aw & Xiaomin Chen & Mark J. Roberts, 1997. "Firm-level Evidence on Productivity Differentials, Turnover, and Exports in Taiwanese Manufacturing," NBER Working Papers 6235, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Andrew Atkeson & Patrick J. Kehoe, 1995. "Industry evolution and transition: measuring investment in organization," Staff Report 201, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  1. Pablo , Agnese, 2009. "Japan and her dealings with offshoring: An empirical analysis with aggregate data," MPRA Paper 16505, University Library of Munich, Germany. [Downloadable!]
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  2. Fukuda, Shin-ichi & Koibuchi, Satoshi, 2006. "The Impacts of "Shock Therapy" on Large and Small Clients: Experiences from Two Large Bank Failures in Japan," CEI Working Paper Series 2006-8, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
    Other versions:
  3. Honohan, Patrick, 2009. "Resolving Ireland’s Banking Crisis," The Economic and Social Review, Economic and Social Studies, vol. 40(2), pages 207–231. [Downloadable!]
  4. Agnese, Pablo & Sala, Hector, 2008. "The fading 1990s in Japan: Driving forces behind the unemployment upsurge," MPRA Paper 16501, University Library of Munich, Germany. [Downloadable!]
  5. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2006. "Zombie Lending and Depressed Restructuring in Japan," NBER Working Papers 12129, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Koji Sakai & Iichiro Uesugi & Tsutomu Watanabe, 2005. "Firm Age and the Evolution of Borrowing Costs: Evidence from Japanese Small Firms," Discussion papers 05026, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  7. Kyoji Fukao & Hyeog Ug Kwon, 2004. "Why Did Japan's TFP Growth Slow Down in the Lost Decade?: An Empirical Analysis Based on Firm-Level Data of Manufacturing Firms," Hi-Stat Discussion Paper Series d04-50, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
    Other versions:
  8. HOSONO Kaoru, 2009. "Financial Crisis, Firm Dynamics and Aggregate Productivity in Japan," Discussion papers 09012, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  9. Sanghoon Ahn & Kyoji Fukao & Hyeog Ug Kwon, 2005. "The Internationalization and Performance of Korean and Japanese Firms: An Empirical Analysis Based on Micro-data," Discussion papers 05008, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
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