IDEAS home Printed from https://ideas.repec.org/p/eti/dpaper/22072.html
   My bibliography  Save this paper

Did the COVID-19 Pandemic Create More Zombie Firms in Japan?

Author

Listed:
  • Gee Hee HONG
  • ITO Arata
  • NGUYEN Thi Ngoc Anh
  • SAITO Yukiko

Abstract

The COVID-19 pandemic constituted a massive shock to the Japanese economy, as in other countries, posing a significant threat to the business continuity of firms. Bankruptcy rates remain low, partly thanks to large government support, but it is unclear whether the pandemic worsened business dynamism and generated more zombie firms in Japan. In this paper, using firm-level balance sheet and exit information, we find that firm exit rates declined in general, including firms with weak balance sheets, suggesting that the cleansing mechanism, whereby a less productive firm exits to allow for a more productive firm to enter, weakened during the pandemic. Overall firm borrowing also increased during the pandemic, with particular increases in long-term borrowing. The share of zombie firms rose especially in the manufacturing sector.

Suggested Citation

  • Gee Hee HONG & ITO Arata & NGUYEN Thi Ngoc Anh & SAITO Yukiko, 2022. "Did the COVID-19 Pandemic Create More Zombie Firms in Japan?," Discussion papers 22072, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:22072
    as

    Download full text from publisher

    File URL: https://www.rieti.go.jp/jp/publications/dp/22e072.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shin‐ichi Fukuda & Jun‐ichi Nakamura, 2011. "Why Did ‘Zombie’ Firms Recover in Japan?," The World Economy, Wiley Blackwell, vol. 34, pages 1124-1137, July.
    2. 中村, 純一 & Nakamura, Jun-ichi & 福田, 慎一 & Fukuda, Shin-ichi, 2013. "問題企業の復活：「失われた20年」の再検証, What Happened to ‘Zombie’ Firms in Japan?: Reexamination for the Lost Two Decades," CEI Working Paper Series 2012-14, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    3. Yukiko Saito & Makoto Nirei & Vasco Carvalho, 2014. "Supply Chain Disruptions: Evidence from Great East Japan Earthquake," 2014 Meeting Papers 595, Society for Economic Dynamics.
    4. Lilas Demmou & Guido Franco, 2021. "From hibernation to reallocation: Loan guarantees and their implications for post-COVID-19 productivity," OECD Economics Department Working Papers 1687, OECD Publishing.
    5. Ryan Niladri Banerjee & Boris Hofmann, 2018. "The rise of zombie firms: causes and consequences," BIS Quarterly Review, Bank for International Settlements, September.
    6. Lucia Foster & Cheryl Grim & John Haltiwanger, 2016. "Reallocation in the Great Recession: Cleansing or Not?," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 293-331.
    7. 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.
    8. Imai, Kentaro, 2016. "A panel study of zombie SMEs in Japan: Identification, borrowing and investment behavior," Journal of the Japanese and International Economies, Elsevier, vol. 39(C), pages 91-107.
    9. Miyakawa, Daisuke & Oikawa, Koki & Ueda, Kozo, 2021. "Firm Exit during the COVID-19 Pandemic: Evidence from Japan," Journal of the Japanese and International Economies, Elsevier, vol. 59(C).
    10. Sofie Balcaen & Sophie Manigart & Jozefien Buyze & Hubert Ooghe, 2012. "Firm exit after distress: differentiating between bankruptcy, voluntary liquidation and M&A," Small Business Economics, Springer, vol. 39(4), pages 949-975, November.
    11. 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.
    12. Hiroyasu Inoue & Yasuyuki Todo, 2020. "The propagation of the economic impact through supply chains: The case of a mega-city lockdown against the spread of COVID-19," Papers 2003.14002, arXiv.org.
    13. Mr. Gee Hee Hong & Arata Ito & Yukiko Umeno Saito & Anh Thi Ngoc Nguyen, 2020. "Structural Changes in Japanese Firms: Business Dynamism in an Aging Society," IMF Working Papers 2020/182, International Monetary Fund.
    14. Jun-Ichi Nakamura & Shin-Ichi Fukuda, 2013. "What Happened To "Zombie" Firms In Japan?: Reexamination For The Lost Two Decades," Global Journal of Economics (GJE), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-18.
    15. Prantl, Susanne, 2003. "Bankruptcy and Voluntary Liquidation: Evidence for New Firms in East and West Germany after Unification," ZEW Discussion Papers 03-72, ZEW - Leibniz Centre for European Economic Research.
    16. Michihito Ando & Chishio Furukawa & Daigo Nakata & Kazuhiko Sumiya, 2020. "Fiscal Responses to the COVID-19 Crisis in Japan: The First Six Months," National Tax Journal, National Tax Association;National Tax Journal, vol. 73(3), pages 901-926, September.
    17. Michihito Ando & Chishio Furukawa & Daigo Nakata & Kazuhiko Sumiya, 2020. "Corrigendum: Fiscal Responses to the COVID-19 Crisis in Japan: The First Six Months," National Tax Journal, National Tax Association;National Tax Journal, vol. 73(4), pages 1267-1268, December.
    18. A. Bhattacharjee & C. Higson & S. Holly & P. Kattuman, 2009. "Macroeconomic Instability and Business Exit: Determinants of Failures and Acquisitions of UK Firms," Economica, London School of Economics and Political Science, vol. 76(301), pages 108-131, February.
    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. 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.

    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. Gee Hee HONG & ITO Arata & SAITO Yukiko & Thi-Ngoc Anh NGUYEN, 2020. "Structural Changes in Japanese SMEs: Business Dynamism in Aging Society and Inter-Firm Transaction Network," Policy Discussion Papers 20003, Research Institute of Economy, Trade and Industry (RIETI).
    2. Masayuki Morikawa, 2023. "Productivity and wages of firms using COVID‐19‐related support policies," Social Science Quarterly, Southwestern Social Science Association, vol. 104(3), pages 202-213, May.
    3. MOTOHASHI Kazuyuki, 2021. "Productivity of Firms Using Relief Policies During the COVID-19 Crisis," Policy Discussion Papers 21006, Research Institute of Economy, Trade and Industry (RIETI).
    4. Sadia Rashid & Kanwal Iqbal Khan & Adeel Nasir & Tayyiba Rashid, 2022. "Unveiling living dead: characteristics and consequences of zombie firms," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2121240-212, December.
    5. Morikawa, Masayuki, 2021. "Productivity of firms using relief policies during the COVID-19 crisis," Economics Letters, Elsevier, vol. 203(C).
    6. Goto, Yasuo & Wilbur, Scott, 2019. "Unfinished business: Zombie firms among SME in Japan’s lost decades," Japan and the World Economy, Elsevier, vol. 49(C), pages 105-112.
    7. Leire San-Jose & Sara Urionabarrenetxea & Jose-Domingo García-Merino, 2022. "Zombie firms and corporate governance: What room for maneuver do companies have to avoid becoming zombies?," Review of Managerial Science, Springer, vol. 16(3), pages 835-862, April.
    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. 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).
    10. Peng XU, 2019. "Exit of Small Businesses: Differentiating between Insolvency, Voluntary Closures and M&A," Discussion papers 19051, Research Institute of Economy, Trade and Industry (RIETI).
    11. Scott Wilbur, 2019. "Credit Guarantees and Zombie Firms," Working Papers hal-02382926, HAL.
    12. Li, Jie & Guo, Xiaowei & Huang, Bihong & Zhou, Tianhang, 2024. "Political connections and zombie firms: The role of the 2008 stimulus plan in China," Journal of Financial Stability, Elsevier, vol. 72(C).
    13. 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.
    14. 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).
    15. Marian Nehrebecki, 2023. "Zombification in Poland in particular during COVID-19 pandemic and low interest rates," Bank i Kredyt, Narodowy Bank Polski, vol. 54(2), pages 153-190.
    16. Dai, Xiaoyong & Qiao, Xiaole & Song, Lin, 2019. "Zombie firms in China's coal mining sector: Identification, transition determinants and policy implications," Resources Policy, Elsevier, vol. 62(C), pages 664-673.
    17. Feng, Ling & Lang, Henan & Pei, Tingting, 2022. "Zombie firms and corporate savings: Evidence from Chinese manufacturing firms," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 551-564.
    18. Mingarelli, Luca & Ravanetti, Beatrice & Shakir, Tamarah & Wendelborn, Jonas, 2022. "Dawn of the (half) dead: the twisted world of zombie identification," Working Paper Series 2743, European Central Bank.
    19. Shaozhen Han & Guoming Li & Michel Lubrano & Zhou Xun, 2020. "Lie of the Weak: Inconsistent Corporate Social Responsibility Activities of Chinese Zombie Firms," AMSE Working Papers 2001, Aix-Marseille School of Economics, France.
    20. Kin Wai Cheung & Masami Imai, 2023. "Zombie Lending, Labor Hoarding, and Local Industry Growth," Wesleyan Economics Working Papers 2023-003, Wesleyan University, Department of Economics.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:eti:dpaper:22072. 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: TANIMOTO, Toko (email available below). General contact details of provider: https://edirc.repec.org/data/rietijp.html .

    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.