IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/16685.html
   My bibliography  Save this paper

Zombie Lending: Theoretical, International, and Historical Perspectives

Author

Listed:
  • Acharya, Viral
  • Crosignani, Matteo
  • Eisert, Tim
  • Steffen, Sascha

Abstract

This paper surveys the theory on zombie lending incentives and the consequences of zombie lending for the real economy. It also offers a historical perspective by reviewing the growing empirical evidence on zombie lending along three dimensions: (i) the role of under-capitalized banks, (ii) effects on zombie firms, and (iii) spillovers and distortions for non-zombie firms. We then provide an overview of how zombie lending can be attenuated. Finally, we use a sample of U.S. publicly listed firms to compare various measures proposed in the literature to classify firms as ``zombies." We identify definitions of zombie firms that are adequate to investigate economic inefficiency in the form of real sector competitive distortions of zombie lending. We find that only definitions that are based on interest rate subsidies are able to detect these spillovers and thereby provide evidence in support of credit misallocation.

Suggested Citation

  • Acharya, Viral & Crosignani, Matteo & Eisert, Tim & Steffen, Sascha, 2022. "Zombie Lending: Theoretical, International, and Historical Perspectives," CEPR Discussion Papers 16685, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16685
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP16685
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Clemens Possnig & Andreea Rotu{a}rescu & Kyungchul Song, 2022. "Estimating Dynamic Spillover Effects along Multiple Networks in a Linear Panel Model," Papers 2211.08995, arXiv.org.
    2. 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.
    3. Sadia Rashid & Kanwal Iqbal Khan & Adeel Nasir & Tayyiba Rashid, 2022. "Unveiling living dead: characteristics and consequences of zombie firms," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2121240-212, December.
    4. Edward I. Altman & Rui Dai & Wei Wang, 2024. "Global zombie companies: measurements, determinants, and outcomes," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 55(6), pages 723-744, August.
    5. Bonfim, Diana & Custódio, Cláudia & Raposo, Clara, 2023. "Supporting small firms through recessions and recoveries," Journal of Financial Economics, Elsevier, vol. 147(3), pages 658-688.
    6. 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.
    7. Honda, Tomohito & Hosono, Kaoru & Miyakawa, Daisuke & Ono, Arito & Uesugi, Iichiro, 2023. "Determinants and effects of the use of COVID-19 business support programs in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 67(C).
    8. Álvarez, Laura & García-Posada, Miguel & Mayordomo, Sergio, 2023. "Distressed firms, zombie firms and zombie lending: A taxonomy," Journal of Banking & Finance, Elsevier, vol. 149(C).
    9. Chakrabarti, Prasenjit & Kaur, Jasmeet, 2024. "Zombie-lending during the pandemic in India: Did the Central Bank reduce credit misallocation concerns of forbearance?," Journal of Policy Modeling, Elsevier, vol. 46(1), pages 153-170.
    10. HONDA Tomohito & ONO Arito & UESUGI Iichiro & YASUDA Yukihiro, 2023. "Anatomy of Out-of-court Debt Workouts for SMEs," Discussion papers 23088, Research Institute of Economy, Trade and Industry (RIETI).
    11. Giovanni Favara & Camelia Minoiu & Amber Perez-Orive, 2024. "Zombie Lending to U.S. Firms," FRB Atlanta Working Paper 2024-7, Federal Reserve Bank of Atlanta.
    12. Chao Ma & Hongying Li & Sardar Fawad Saleem & Firicel Mone, 2023. "Balancing Progress and Sustainability : Industrial Innovation's Impact on Europe's Emission Management, Economic Expansion, and Financial Growth," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 129-147, October.
    13. Raffaela Casciello & Marco Maffei & David A. Ziebart, 2024. "Regulatory and contextual factors influencing earnings and capital management decisions: evidence from the European banking sector," Review of Quantitative Finance and Accounting, Springer, vol. 63(1), pages 87-146, July.
    14. Miguel Faria-e-Castro & Pascal Paul & Juan M. Sanchez, 2023. "Do Banks Lend to Distressed Firms?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2023(31), pages 1-5, November.
    15. Jing Bu & Julan Du & Jiancai Pi, 2024. "Do zombie firms affect healthy firms' exporting? Evidence from China," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(3), pages 707-738, July.
    16. Sánchez Serrano, Antonio, 2022. "Loan renegotiation and the long-term impact on total factor productivity," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(4).

    More about this item

    Keywords

    Zombie credit; Credit misallocation; Capital misallocation; Bank capital; Undercapitalized banks; Interst rate subsidy; Spillovers;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:16685. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.