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Zombies at Large? Corporate Debt Overhang and the Macroeconomy

Author

Listed:
  • Òscar Jordà

    (UC Davis - University of California [Davis] - UC - University of California, CEPR - Center for Economic Policy Research)

  • Martin Kornejew

    (Universität Bonn = University of Bonn)

  • Moritz Schularick

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, Universität Bonn = University of Bonn, CEPR - Center for Economic Policy Research)

  • Alan Taylor

    (UC Davis - University of California [Davis] - UC - University of California, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research, CEPR - Center for Economic Policy Research)

Abstract

Debt overhang is associated with higher financial fragility and slower recovery from recession. However, while household credit booms have been extensively documented to have this property, we find that corporate debt does not fit the same pattern. Newly collected data on nonfinancial business liabilities for 18 advanced economies over the past 150 years shows that, in the aggregate, greater frictions in corporate debt resolution make for slower recoveries, with weak investment and more persistent "zombie firms" and that this is an important factor in explaining the difference in outcomes relative to household credit booms.

Suggested Citation

  • Òscar Jordà & Martin Kornejew & Moritz Schularick & Alan Taylor, 2022. "Zombies at Large? Corporate Debt Overhang and the Macroeconomy," SciencePo Working papers Main hal-03935641, HAL.
    • Handle: RePEc:hal:spmain:hal-03935641
    DOI: 10.1093/rfs/hhac018
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    More about this item

    Keywords

    Corporate debt; Business cycles; Local projections;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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