IDEAS home Printed from https://ideas.repec.org/a/kap/sbusec/v61y2023i4d10.1007_s11187-023-00752-8.html
   My bibliography  Save this article

Administrative reform and the disposal of zombie enterprises: evidence from China

Author

Listed:
  • Linlin Fan

    (Southwestern University of Finance and Economics)

  • Tingfeng Tang

    (Southwestern University of Finance and Economics)

  • Gongyan Yang

    (Liaoning University)

Abstract

The study investigates the effects of drastic institutional changes on the reduction of zombie enterprises in China and the underlying mechanisms of this relationship. We employed data from the ASIF from 1998 to 2007 and adapted the difference-in-difference approach to analyze the effects based on China’s investment approval system reform. We find that the reform can reduce the proportion of zombie enterprises by 13.3%. This result is driven by competition and scale effects. The former reduces institutional transaction costs by 12.8% and increases innovation capacity by 6.1%. The latter significantly improves the total factor productivity of enterprises; the reform promoted the expansion of enterprise size by 7.1% and the enhancement of market accommodation capacity by 13.2%. The reform had a weak effect on state-owned and non-competitive industrial zombie enterprises. This paper contributes to debates concerning the effect of institutions on entrepreneurship and the disposal of small zombie enterprises.

Suggested Citation

  • Linlin Fan & Tingfeng Tang & Gongyan Yang, 2023. "Administrative reform and the disposal of zombie enterprises: evidence from China," Small Business Economics, Springer, vol. 61(4), pages 1845-1869, December.
    • Handle: RePEc:kap:sbusec:v:61:y:2023:i:4:d:10.1007_s11187-023-00752-8
    DOI: 10.1007/s11187-023-00752-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11187-023-00752-8
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11187-023-00752-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

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

    References listed on IDEAS

    as
    1. Zoltán J. Ács & Erkko Autio & László Szerb, 2015. "National Systems of Entrepreneurship: Measurement issues and policy implications," Chapters, in: Global Entrepreneurship, Institutions and Incentives, chapter 28, pages 523-541, Edward Elgar Publishing.
    2. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 1-37.
    3. Prieger, James E. & Bampoky, Catherine & Blanco, Luisa R. & Liu, Aolong, 2016. "Economic Growth and the Optimal Level of Entrepreneurship," World Development, Elsevier, vol. 82(C), pages 95-109.
    4. Jun-ichi Nakamura, 2017. "Japanese Firms During the Lost Two Decades," SpringerBriefs in Economics, Springer, number 978-4-431-55918-4, December.
    5. Hoshi, Takeo & Kawaguchi, Daiji & Ueda, Kenichi, 2023. "Zombies, again? The COVID-19 business support programs in Japan," Journal of Banking & Finance, Elsevier, vol. 147(C).
    6. Esteban Lafuente & Zoltan J. Acs & Mark Sanders & László Szerb, 2020. "The global technology frontier: productivity growth and the relevance of Kirznerian and Schumpeterian entrepreneurship," Small Business Economics, Springer, vol. 55(1), pages 153-178, June.
    7. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    8. Lu, Yi & Tao, Zhigang & Zhu, Lianming, 2017. "Identifying FDI spillovers," Journal of International Economics, Elsevier, vol. 107(C), pages 75-90.
    9. Jaskowski, Marcin, 2015. "Should zombie lending always be prevented?," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 191-203.
    10. 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.
    11. Brandt, Loren & Van Biesebroeck, Johannes & Zhang, Yifan, 2014. "Challenges of working with the Chinese NBS firm-level data," China Economic Review, Elsevier, vol. 30(C), pages 339-352.
    12. Amici, Monica & Giacomelli, Silvia & Manaresi, Francesco & Tonello, Marco, 2016. "Red tape reduction and firm entry: New evidence from an Italian reform," Economics Letters, Elsevier, vol. 146(C), pages 24-27.
    13. Daniel L. Bennett, 2021. "Local economic freedom and creative destruction in America," Small Business Economics, Springer, vol. 56(1), pages 333-353, January.
    14. Chang, Qingqing & Zhou, Yisihong & Liu, Guangqiang & Wang, Di & Zhang, Xiaojie, 2021. "How does government intervention affect the formation of zombie firms?," Economic Modelling, Elsevier, vol. 94(C), pages 768-779.
    15. Wim Naudé, 2022. "From the entrepreneurial to the ossified economy," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(1), pages 105-131.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Pilar Muñoz-Dueñas & Manuel Meijide-Vecino & Jesús F. Lampón & Antonio Vaamonde-Liste, 2024. "Do crises Really Catalyze Creative Destruction? A Critical Reflection on Firm Survival," SAGE Open, , vol. 14(2), pages 21582440241, June.
    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.

    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. Shangming Yang & Yanjiang Zhang & Jinyuan Zhang & Bochao Zhang, 2024. "Technology accessibility and the local government's incentive to aid zombie firms in China," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(2), pages 501-523, April.
    2. 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.
    3. Szerb, László & Varga, Attila & Sebestyén, Tamás & Szabó, Norbert, 2024. "A vállalkozói ökoszisztémát fejlesztő szakpolitikák regionális hatásának elemzése az EU három országában [Assessing the regional impacts of policies to develop entrepreneurial ecosystems in three E," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1141-1175.
    4. Keller, Wolfgang & Ridley, William & Qiu, Larry D. & Jiang, Kun, 2018. "International Joint Ventures and Internal versus External Technology Transfer: Evidence from China," CEPR Discussion Papers 12809, C.E.P.R. Discussion Papers.
    5. Zhu, Ruoyu & Tan, Kehu & Xin, Xiaohui, 2024. "Does the opening of high-speed rail inhibit corporate zombification?," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 372-389.
    6. Tan, Ruipeng & Zhu, Wenjun & Pan, Lulu & Wu, Huaqing, 2024. "Short selling and de-zombification: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 86-102.
    7. Qiao, Lu & Fei, Junjun, 2022. "Government subsidies, enterprise operating efficiency, and “stiff but deathless” zombie firms," Economic Modelling, Elsevier, vol. 107(C).
    8. 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.
    9. Jiang, Kun & Keller, Wolfgang & Qiu, Larry D. & Ridley, William, 2024. "International joint ventures and internal technology transfer vs. external technology spillovers: Evidence from China," Journal of International Economics, Elsevier, vol. 150(C).
    10. Li, Xinyu & Wang, Huacheng & Li, Rong, 2023. "A hidden channel of “blood transfusion”: Internal capital market subsidies and zombie firms," The British Accounting Review, Elsevier, vol. 55(6).
    11. Shen, Yu & Ren, Meixu & Zhao, Jingmei, 2023. "Bank competition and zombie company: Empirical evidence from China," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 297-318.
    12. Deng Ming & Wang Jinbo, 2022. "Why do zombie firms seldom die or resurrect? The effect of government subsidies on the survival duration of China’s zombie firms," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 212-228, January.
    13. Tian, Yanping & Song, Wenjing & Liu, Min, 2021. "Assessment of how environmental policy affects urban innovation: Evidence from China’s low-carbon pilot cities program," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 41-56.
    14. Carlos Carreira & Paulino Teixeira, 2016. "Entry and exit in severe recessions: lessons from the 2008–2013 Portuguese economic crisis," Small Business Economics, Springer, vol. 46(4), pages 591-617, April.
    15. Yoonseok Lee & Mary E. Lovely & Hoang Pham, 2023. "Dynamic and non‐neutral productivity effects of foreign ownership: A nonparametric approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(1), pages 24-48, January.
    16. Andrea Cintolesi & Sauro Mocetti & Giacomo Roma, 2024. "Productivity and entry regulation: evidence from the universe of firms," Temi di discussione (Economic working papers) 1455, Bank of Italy, Economic Research and International Relations Area.
    17. Carlos Carreira & Paulino Teixeira, 2016. "Entry and exit in severe recessions: lessons from the 2008–2013 Portuguese economic crisis," Small Business Economics, Springer, vol. 46(4), pages 591-617, April.
    18. Nakamura, Jun-ichi, 2023. "A 50-year history of “zombie firms” in Japan: How banks and shareholders have been involved in corporate bailouts?," Japan and the World Economy, Elsevier, vol. 66(C).
    19. Sun, Chuanwang & Zhan, Yanhong & Gao, Xiang, 2023. "Does environmental regulation increase domestic value-added in exports? An empirical study of cleaner production standards in China," World Development, Elsevier, vol. 163(C).
    20. Audretsch, David B. & Belitski, Maksim & Chowdhury, Farzana & Desai, Sameeksha, 2024. "Regulating entrepreneurship quality and quantity," Research Policy, Elsevier, vol. 53(2).

    More about this item

    Keywords

    Zombie enterprises; Approval system reform; Total factor productivity; Firm innovation; Entrepreneurship;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform

    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:kap:sbusec:v:61:y:2023:i:4:d:10.1007_s11187-023-00752-8. 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.

    If CitEc recognized a bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.