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

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  • 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
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    Cited by:

    1. 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

    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

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