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Bank Specialization and Zombie Lending

Author

Listed:
  • Olivier De Jonghe

    (Research Department, National Bank of Belgium, 1000 Brussels, Belgium; and Finance Department, Tilburg University, 5000LE Tilburg, Netherlands)

  • Klaas Mulier

    (Department of Accounting, Corporate Finance and Taxation, Ghent University, 9000 Gent, Belgium)

  • Ilia Samarin

    (Research Department, National Bank of Belgium, 1000 Brussels, Belgium)

Abstract

We study whether banks internalize congestion externalities when lending to zombie firms. We conjecture that banks should be better informed about the presence of zombie firms and the congestion externalities that such firms exert on healthy borrowers in industries where banks are specialized and show that banks’ credit supply to zombie firms relates negatively to their industry specialization. This relation is stronger when congestion externalities are likely to have stronger adverse effects, namely when zombie firms take a higher fraction of resources in the industry or when the industry is geographically more concentrated. Additionally, this relation is weaker in industries with higher asset specificity as zombie firms’ default (and potential asset fire sales) could reduce healthy borrowers’ collateral value.

Suggested Citation

  • Olivier De Jonghe & Klaas Mulier & Ilia Samarin, 2025. "Bank Specialization and Zombie Lending," Management Science, INFORMS, vol. 71(2), pages 1260-1286, February.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:2:p:1260-1286
    DOI: 10.1287/mnsc.2023.01437
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    Cited by:

    1. Demirgüç-Kunt, Asli & Horváth, Bálint & Huizinga, Harry, 2023. "Loan recoveries and the financing of zombie firms over the business cycle," CEPR Discussion Papers 18351, C.E.P.R. Discussion Papers.
    2. Demirguc-Kunt, Asli & Horvath, Balint L. & Huizinga, Harry, 2023. "Loan Recoveries and the Financing of Zombie Firms over the Business Cycle," Other publications TiSEM f86d5fb2-4829-426b-b026-b, Tilburg University, School of Economics and Management.
    3. Dursun-de Neef, H. Özlem, 2023. "Bank specialization, mortgage lending and house prices," Journal of Banking & Finance, Elsevier, vol. 151(C).

    More about this item

    Keywords

    credit misallocation; zombie lending; bank specialization; soft industry information;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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