DP14758 Identifying the Real Effects of Zombie Lending

Author(s): Fabiano Schivardi, Enrico Sette, Guido Tabellini
Publication Date: May 2020
Keyword(s): capital misallocation, zombie lending
JEL(s): E44, G21
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14758

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.