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Identifying the Real Effects of Zombie Lending

Author

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  • Fabiano Schivardi
  • Enrico Sette
  • Guido Tabellini

Abstract

The policy response to COVID-19 includes the provision of credit guarantees to firms, a provision that may generate zombie lending. According to the recent literature, the relative performance of healthy firms deteriorates as the fraction of zombies increases. We argue that this literature faces a serious identification problem, because firm performance is often used to define zombies (sometimes implicitly). We show that, under general conditions for the distribution of firm performance, the correlation between healthy firm performance and zombies is a mechanical consequence of an increase in the fraction of zombies with no causal meaning. (JEL E44, G21)Received June 2, 2020; editorial decision June 23, 2020 by Editor Uday Rajan.

Suggested Citation

  • Fabiano Schivardi & Enrico Sette & Guido Tabellini, 2020. "Identifying the Real Effects of Zombie Lending," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 569-592.
    • Handle: RePEc:oup:rcorpf:v:9:y:2020:i:3:p:569-592.
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    References listed on IDEAS

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    1. Ana Fontoura Gouveia & Christian Osterhold, 2018. "Fear the walking dead: Zombie firms, spillovers and exit barriers," OECD Productivity Working Papers 13, OECD Publishing.
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    4. Viral V. Acharya & Matteo Crosignani & Tim Eisert & Christian Eufinger, 2024. "Zombie Credit and (Dis‐)Inflation: Evidence from Europe," Journal of Finance, American Finance Association, vol. 79(3), pages 1883-1929, June.
    5. Reinhart, Carmen M. & Rogoff, Kenneth S., 2013. "Banking crises: An equal opportunity menace," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4557-4573.
    6. Christian Osterhold, 2018. "Fear the walking dead: zombie firms, spillovers and exit barriers," Working Papers w201811, Banco de Portugal, Economics and Research Department.
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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