IDEAS home Printed from
   My bibliography  Save this paper

Efficiency among Japanese SMEs: In the context of the zombie firm hypothesis and firm size


  • GOTO Yasuo
  • Scott WILBUR


The "soft budget problem," by which banks loosen their lending stances toward long-term client firms despite worsening business conditions, has been widely discussed in the field of financial studies. In Japan, this problem has attracted attention particularly in connection to so-called "zombie firms," financially weak firms sustained by discounted interest rates and evergreen lending which have become a major research and political interest in recent years. In this paper, we focus on zombie firms among small and medium-sized enterprises (SMEs), a corporate category that has hitherto received less consideration in the discussion about Japan's zombie firms. We find that: (1) many zombie firms exist among SMEs; (2) some zombie firms eventually emerge from zombie status; (3) once a firm becomes a zombie, its probability of exit increases especially among SMEs; and (4) the economic performance of exiting zombie firms is worse than those of exiting non-zombie firms.

Suggested Citation

  • 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).
  • Handle: RePEc:eti:dpaper:17123

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Viral V Acharya & Tim Eisert & Christian Eufinger & Christian Hirsch, 2019. "Whatever It Takes: The Real Effects of Unconventional Monetary Policy," Review of Financial Studies, Society for Financial Studies, vol. 32(9), pages 3366-3411.
    2. Shin‐ichi Fukuda & Jun‐ichi Nakamura, 2011. "Why Did ‘Zombie’ Firms Recover in Japan?," The World Economy, Wiley Blackwell, vol. 34, pages 1124-1137, July.
    3. Joe Peek & Eric S. Rosengren, 2005. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," American Economic Review, American Economic Association, vol. 95(4), pages 1144-1166, September.
    4. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
    5. 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.
    6. Jun-ichi Nakamura, 2017. "Japanese Firms During the Lost Two Decades," SpringerBriefs in Economics, Springer, number 978-4-431-55918-4, February.
    7. Alan Ahearne & Naoki Shinada, 2005. "Zombie firms and economic stagnation in Japan," International Economics and Economic Policy, Springer, vol. 2(4), pages 363-381, December.
    8. Naomi Griffin & Kazuhiko Odaki, 2009. "Reallocation and productivity growth in Japan: revisiting the lost decade of the 1990s," Journal of Productivity Analysis, Springer, vol. 31(2), pages 125-136, April.
    9. Sekine, Toshitaka & Kobayashi, Keiichiro & Saita, Yumi, 2003. "Forbearance Lending: The Case of Japanese Firms," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 69-92, August.
    10. Hyeog Ug Kwon & Futoshi Narita & Machiko Narita, 2015. "Resource Reallocation and Zombie Lending in Japan in the 1990s," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 709-732, October.
    11. Imai, Kentaro, 2016. "A panel study of zombie SMEs in Japan: Identification, borrowing and investment behavior," Journal of the Japanese and International Economies, Elsevier, vol. 39(C), pages 91-107.
    12. Elif C Arbatli Saxegaard & Dennis P Botman & Kevin Clinton & Pietro Cova & Vitor Gaspar & Zoltan Jakab & Douglas Laxton & Constant A Lonkeng Ngouana & Joannes Mongardini & Hou Wang, 2016. "Reflating Japan; Time to Get Unconventional?," IMF Working Papers 2016/157, International Monetary Fund.
    13. Yuyaun Tan & Yiping Huang & Wing Thye Woo, 2016. "Zombie Firms and the Crowding-Out of Private Investment in China," Asian Economic Papers, MIT Press, vol. 15(3), pages 32-55, Fall.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. 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.
    3. Yu, Miao & Guo, Yue Mei & Wang, Di & Gao, Xiaohan, 2021. "How do zombie firms affect debt financing costs of others: From spillover effects views," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    4. Shaozhen Han & Guoming Li & Michel Lubrano & Zhou Xun, 2020. "Lie of the Weak: Inconsistent Corporate Social Responsibility Activities of Chinese Zombie Firms," AMSE Working Papers 2001, Aix-Marseille School of Economics, France.
    5. De Veirman, Emmanuel & Levin, Andrew T., 2012. "When did firms become more different? Time-varying firm-specific volatility in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 578-601.
    6. Fabiano Schivardi & Enrico Sette & Guido Tabellini, 2017. "Credit misallocation during the European financial crisis," Temi di discussione (Economic working papers) 1139, Bank of Italy, Economic Research and International Relations Area.
    7. Fang, Jianchun & Gozgor, Giray & Lau, Chi-Keung Marco & Wu, Wanshan & Yan, Cheng, 2020. "Listed zombie firms and top executive gender: Evidence from an emerging market," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    8. Uchida, Hirofumi & Miyakawa, Daisuke & Hosono, Kaoru & Ono, Arito & Uchino, Taisuke & Uesugi, Iichiro, 2013. "Natural Disaster and Natural Selection," Working Paper Series 25, Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University.
    9. Liu, Guangqiang & Zhang, Xiaojie & Zhang, Wanting & Wang, Di, 2019. "The impact of government subsidies on the capacity utilization of zombie firms," Economic Modelling, Elsevier, vol. 83(C), pages 51-64.
    10. Scott Wilbur, 2019. "Credit Guarantees and Zombie Firms," Working Papers hal-02382926, HAL.
    11. Gunther Schnabl, 2019. "China's Overinvestment and International Trade Conflicts," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 27(5), pages 37-62, September.
    12. W. R. Garside, 2012. "Japan’s Great Stagnation," Books, Edward Elgar Publishing, number 14624.
    13. Tracey, Belinda, 2019. "The real effects of zombie lending in Europe," Bank of England working papers 783, Bank of England.
    14. Shen, Guangjun & Chen, Binkai, 2017. "Zombie firms and over-capacity in Chinese manufacturing," China Economic Review, Elsevier, vol. 44(C), pages 327-342.
    15. Fukuda, Shin-ichi & Koibuchi, Satoshi, 2007. "The impacts of "shock therapy" on large and small clients: Experiences from two large bank failures in Japan," Pacific-Basin Finance Journal, Elsevier, vol. 15(5), pages 434-451, November.
    16. Piotr Ciżkowicz & Andrzej Rzońca & Andrzej Torój, 2019. "In Search of an Appropriate Lower Bound. The Zero Lower Bound vs. the Positive Lower Bound under Discretion and Commitment," German Economic Review, Verein für Socialpolitik, vol. 20(4), pages 1028-1053, November.
    17. Imai, Masami, 2019. "Regulatory responses to banking crisis: Lessons from Japan," Global Finance Journal, Elsevier, vol. 39(C), pages 10-16.
    18. Sakai, Koji & Uesugi, Iichiro & Watanabe, Tsutomu, 2010. "Firm age and the evolution of borrowing costs: Evidence from Japanese small firms," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1970-1981, August.
    19. Nurmi, Satu & Vanhala, Juuso & Virén, Matti, 2020. "The life and death of zombies – evidence from government subsidies to firms," Research Discussion Papers 8/2020, Bank of Finland.
    20. Shin-ichi Fukuda & Munehisa Kasuya & Jouchi Nakajima, 2005. "Deteriorating Bank Health and Lending in Japan: Evidence from Unlisted Companies Undergoing Financial Distress (Subsequently published in "Journal of the Asia Pacific Economy" Vo.11, No.4, D," CARF F-Series CARF-F-042, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:eti:dpaper:17123. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (TANIMOTO, Toko). General contact details of provider: .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.