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Discussion Paper Details

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Title: Identifying the Real Effects of Zombie Lending

Author(s): Fabiano Schivardi, Enrico Sette and Guido Tabellini

Publication Date: May 2020

Keyword(s): capital misallocation and zombie lending

Programme Area(s): Financial Economics

Abstract: Several papers study the real effects of zombie lending based on regressions showing that the performance of healthy firms relative to zombie firms deteriorates as the fraction of zombie firms increases. This finding is interpreted as evidence of a negative spillover from zombies to healthy firms. We argue that this commonly used approach faces a serious identification problem. Under general conditions on the distribution of firm performance, the deterioration of the relative performance of healthy firms is a mechanical consequence of an increase in the fraction of zombies and cannot be interpreted as evidence of negative spillovers.

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Bibliographic Reference

Schivardi, F, Sette, E and Tabellini, G. 2020. 'Identifying the Real Effects of Zombie Lending'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14758