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Efficiency among Japanese SMEs: In the context of the zombie firm hypothesis and firm size

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  • GOTO Yasuo
  • Scott WILBUR

Abstract

The "soft budget problem," by which banks loosen their lending stances toward long-term client firms despite worsening business conditions, has been widely discussed in the field of financial studies. In Japan, this problem has attracted attention particularly in connection to so-called "zombie firms," financially weak firms sustained by discounted interest rates and evergreen lending which have become a major research and political interest in recent years. In this paper, we focus on zombie firms among small and medium-sized enterprises (SMEs), a corporate category that has hitherto received less consideration in the discussion about Japan's zombie firms. We find that: (1) many zombie firms exist among SMEs; (2) some zombie firms eventually emerge from zombie status; (3) once a firm becomes a zombie, its probability of exit increases especially among SMEs; and (4) the economic performance of exiting zombie firms is worse than those of exiting non-zombie firms.

Suggested Citation

  • GOTO Yasuo & Scott WILBUR, 2017. "Efficiency among Japanese SMEs: In the context of the zombie firm hypothesis and firm size," Discussion papers 17123, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:17123
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