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Zombies and the Process of Creative Destruction

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  • Pattanaik, Sitikantha
  • Muduli, Silu
  • Jose, Jibin

Abstract

The Schumpeterian creative destruction process requires a dynamic reallocation of resources from weak and vulnerable firms to strong firms having high growth potential. Zombie firms that often survive longer than desirable taking advantage of countercyclical policy support, however, tend to thwart that process. Using firm-level data for India this article finds that monetary policy does not hinder the creative destruction process by misallocating credit flows to zombies during periods of economic slowdown, but zombies seem to have dampened the effectiveness of monetary policy at the margin as they use borrowed resources more for their survival than for undertaking new investment.

Suggested Citation

  • Pattanaik, Sitikantha & Muduli, Silu & Jose, Jibin, 2022. "Zombies and the Process of Creative Destruction," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 76(2), pages 53-66.
    • Handle: RePEc:zbw:espost:249773
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    References listed on IDEAS

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    1. Dan Andrews & Filippos Petroulakis, 2017. "Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe," OECD Economics Department Working Papers 1433, OECD Publishing.
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    4. Müge Adalet McGowan & Dan Andrews & Valentine Millot & Thorsten BeckManaging Editor, 2018. "The walking dead? Zombie firms and productivity performance in OECD countries," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 33(96), pages 685-736.
    5. Allen, Franklin & Chakrabarti, Rajesh & De, Sankar & Qian, Jun “QJ” & Qian, Meijun, 2012. "Financing firms in India," Journal of Financial Intermediation, Elsevier, vol. 21(3), pages 409-445.
    6. Pattanaik, Arpita & Rajeswari Sengupta, 2018. "Business cycle effect on leverage: A study of Indian non-financial firms," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2018-001, Indira Gandhi Institute of Development Research, Mumbai, India.
    7. Ryan Banerjee & Boris Hofmann, 2022. "Corporate zombies: anatomy and life cycle," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(112), pages 757-803.
    8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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    Cited by:

    1. Anna Burova & Danila Karpov & Denis Koshelev, 2023. "Decomposition of Corporate Credit Growth Using Granular Data," Bank of Russia Working Paper Series wps119, Bank of Russia.

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    More about this item

    Keywords

    Zombie firms in India; monetary policy; bank credit; investment;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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