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Zombie firms and corporate savings: Evidence from Chinese manufacturing firms

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  • Feng, Ling
  • Lang, Henan
  • Pei, Tingting

Abstract

Zombie firms may have substantial financial consequences. In a simple theoretical model, we show that the presence of zombie firms may increase the debt financing cost of non-zombie firms and induce the latter to rely more on internal funds. Consistent with model predictions, our empirical evidence on Chinese manufacturing firms from 1998 to 2007 demonstrates that, the presence of zombie firms will induce the non-zombie firms to save more, and this effect is particularly strong if the non-zombie firms are financially constrained and if the financial market condition is tight.

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  • Feng, Ling & Lang, Henan & Pei, Tingting, 2022. "Zombie firms and corporate savings: Evidence from Chinese manufacturing firms," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 551-564.
    • Handle: RePEc:eee:reveco:v:79:y:2022:i:c:p:551-564
    DOI: 10.1016/j.iref.2022.02.008
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    Cited by:

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    2. 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.

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    More about this item

    Keywords

    Financial constraints; Firm savings; Zombie firms;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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