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How do land and migration restrictions inhibit the formation of zombie firms? Quasi-natural experimental evidence from China

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  • Chi Zhang
  • Yong Qi
  • Shuo Yang

Abstract

This paper takes China’s land and migration restrictions (LMRs) on mega cities in 2014 as a quasi-natural experiment. Employing a staggered difference-in-differences (DID) model, the study investigates the impact of LMRs on the formation of zombie firms and explores the underlying mechanisms. The findings reveal that LMRs lead to increased land and labour costs in mega cities. Consequently, firms respond by enhancing management efficiency and increasing R&D innovation, which significantly inhibits firm zombification. Heterogeneity analysis indicates that this inhibitory effect is more pronounced in firms with low financial constraints, those located in high marketization regions, and those without political connections. Furthermore, a detailed analysis demonstrates that LMRs play a role in facilitating the recovery of zombie firms, while not influencing their exit. This nuanced understanding of the relationship between LMRs and the formation of zombie firms contributes valuable insights to the existing literature.

Suggested Citation

  • Chi Zhang & Yong Qi & Shuo Yang, 2025. "How do land and migration restrictions inhibit the formation of zombie firms? Quasi-natural experimental evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 32(14), pages 2019-2024, August.
    • Handle: RePEc:taf:apeclt:v:32:y:2025:i:14:p:2019-2024
    DOI: 10.1080/13504851.2024.2332524
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