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Lazarus, come forth! Public loan guarantees and the recovery of zombie firms

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  • Acebo, Enrique
  • Gutiérrez-López, Cristina
  • Abad-González, Julio
  • Miguel-Dávila, José-Ángel

Abstract

Can government support really contribute to the recovery of failing businesses? We studied whether financially struggling “zombie” firms benefited more from emergency loans during covid-19 than healthy companies. Analysing 181,526 Spanish micro, small and medium enterprises that received government-backed loans versus 220,179 that did not, we tracked their performance over five years employing a difference-in-differences methodology. Contrary to fears about public resources misallocation, we find that emergency support (through Public Loan Guarantees) effectively revived distressed companies, especially small ones, which recovered notably better than healthy counterparts, achieving 80 % higher revenue growth and 30 % greater employment increases. Most remarkably, 53 % of small zombie firms fully recovered within two years. These findings suggest that targeted government intervention during crises can successfully rehabilitate struggling businesses, providing a roadmap for designing more effective economic rescue policies in future emergencies.

Suggested Citation

  • Acebo, Enrique & Gutiérrez-López, Cristina & Abad-González, Julio & Miguel-Dávila, José-Ángel, 2026. "Lazarus, come forth! Public loan guarantees and the recovery of zombie firms," Economic Modelling, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:ecmode:v:154:y:2026:i:c:s026499932500361x
    DOI: 10.1016/j.econmod.2025.107366
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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