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What Happened To "Zombie" Firms In Japan?: Reexamination For The Lost Two Decades

Author

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  • JUN-ICHI NAKAMURA

    (Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo 186-8603, Japan)

  • SHIN-ICHI FUKUDA

    (Faculty of Economics, University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo 113-0033, Japan)

Abstract

The Japanese economy experienced prolonged recessions during the 1990s and the 2000s. Until the early 2000s, evergreen lending to "zombie" firms had distorted market discipline in terms of stabilizing the Japanese economy. Even though a majority of the zombie firms eventually recovered during the first half of the 2000s, deflation in Japan still persisted throughout the 2000s. The purpose of this paper is to explore how zombie firms recovered in Japan while the deflation persisted. We investigate how corporate restructuring was effective in reviving zombie firms in the 1990s and the 2000s. Our multinomial logistic regressions suggest that some of cost cutting efforts such as reducing the number of employees and selling the fixed assets were beneficial in facilitating the recovery of zombie firms. However, industry-level and firm-level environment, especially labor productivity, had little to do with the recovery. The results may suggest that corporate restructuring without innovations were responsible for the Japan's prolonged deflation in the 2000s.

Suggested Citation

  • Jun-Ichi Nakamura & Shin-Ichi Fukuda, 2013. "What Happened To "Zombie" Firms In Japan?: Reexamination For The Lost Two Decades," Global Journal of Economics (GJE), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-18.
    • Handle: RePEc:wsi:gjexxx:v:02:y:2013:i:02:n:s2251361213500079
    DOI: 10.1142/S2251361213500079
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    References listed on IDEAS

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    1. Kyoji Fukao, 2013. "Explaining Japan's Unproductive Two Decades," Asian Economic Policy Review, Japan Center for Economic Research, vol. 8(2), pages 193-213, December.
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    Citations

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    Cited by:

    1. Dai, Xiaoyong & Qiao, Xiaole & Song, Lin, 2019. "Zombie firms in China's coal mining sector: Identification, transition determinants and policy implications," Resources Policy, Elsevier, vol. 62(C), pages 664-673.
    2. Qiao, Lu & Fei, Junjun, 2022. "Government subsidies, enterprise operating efficiency, and “stiff but deathless” zombie firms," Economic Modelling, Elsevier, vol. 107(C).
    3. GOTO Yasuo & Scott WILBUR, 2017. "Efficiency among Japanese SMEs: In the context of the zombie firm hypothesis and firm size," Discussion papers 17123, Research Institute of Economy, Trade and Industry (RIETI).
    4. Qilin Mao & Jiayun Xu, 2024. "Zombie firms, misallocation and manufacturing capacity utilization rate: Evidence from China," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(2), pages 641-682, April.
    5. Goto, Yasuo & Wilbur, Scott, 2019. "Unfinished business: Zombie firms among SME in Japan’s lost decades," Japan and the World Economy, Elsevier, vol. 49(C), pages 105-112.
    6. Uchida, Hirofumi & Miyakawa, Daisuke & Hosono, Kaoru & Ono, Arito & Uchino, Taisuke & Uesugi, Iichiro, 2015. "Financial shocks, bankruptcy, and natural selection," Japan and the World Economy, Elsevier, vol. 36(C), pages 123-135.
    7. Ivana Blažková & Ondřej Dvouletý, 2022. "Zombies: Who are they and how do firms become zombies?," Journal of Small Business Management, Taylor & Francis Journals, vol. 60(1), pages 119-145, January.
    8. Nakamura, Jun-ichi, 2023. "A 50-year history of “zombie firms” in Japan: How banks and shareholders have been involved in corporate bailouts?," Japan and the World Economy, Elsevier, vol. 66(C).
    9. Shen, Guangjun & Chen, Binkai, 2017. "Zombie firms and over-capacity in Chinese manufacturing," China Economic Review, Elsevier, vol. 44(C), pages 327-342.
    10. Scott Wilbur, 2019. "Credit Guarantees and Zombie Firms," Working Papers hal-02382926, HAL.
    11. Geng, Yong & Liu, Wei & Wu, Yuzhao, 2021. "How do zombie firms affect China’s industrial upgrading?," Economic Modelling, Elsevier, vol. 97(C), pages 79-94.
    12. Gee Hee HONG & ITO Arata & NGUYEN Thi Ngoc Anh & SAITO Yukiko, 2022. "Did the COVID-19 Pandemic Create More Zombie Firms in Japan?," Discussion papers 22072, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    Corporate restructuring; evergreen lending; prolonged deflation; lost two decades in Japan; E32; G21; G33;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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