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How do political connections affect the formation of zombie firms? Evidence from Chinese manufacturing listed enterprises

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  • Wei Shao
  • Ziqi Chen
  • Huaiyu Liu

Abstract

Zombie firms that rely on government subsidies and bank loans have seriously affected the healthy development of economies. This paper uses data from Chinese listed manufacturing enterprises from 2007 to 2017 to test and analyse the relationship between political connections and zombie enterprises. The study finds: (i) political connections are positively correlated with the ‘zombification’ of enterprises; (ii) credit subsidies play an intermediary role between political connections and ‘zombification’ of enterprises, with the acquisition of large credit subsidies the main path to the ‘zombification’ of politically connected enterprises; and (iii) firms that have political connections may use credit subsidies for inefficient over‐investment. This study has value for other countries in clarifying the causes of zombie firms and preventing politically connected enterprises from becoming zombie firms.

Suggested Citation

  • Wei Shao & Ziqi Chen & Huaiyu Liu, 2022. "How do political connections affect the formation of zombie firms? Evidence from Chinese manufacturing listed enterprises," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 36(2), pages 17-31, November.
    • Handle: RePEc:bla:apacel:v:36:y:2022:i:2:p:17-31
    DOI: 10.1111/apel.12361
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    References listed on IDEAS

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    2. Hao Ding, 2024. "Can common institutional ownership inhibit the formation of zombie firms? Evidence from China," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 38(1), pages 34-56, May.

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