Bank competition and zombie company: Empirical evidence from China

Yu Shen, Meixu Ren and Jingmei Zhao

Economic Analysis and Policy, 2023, vol. 80, issue C, 297-318

Abstract: This paper aims to explore the relationship between bank competition and zombie companies. Using a representative micro-database of Chinese enterprises from 1998–2013, we find that bank competition promotes the creation of zombie companies, and there are more zombies in areas with fierce competition. The mechanism analysis reveals that bank competition lowers credit standards and reduces company information review efficiency, making it easier for SMEs and companies with opaque information to obtain credit support, yet these companies are more susceptible to becoming zombies due to unstable operations and high-risk appetite. We further find that loose monetary policy will encourage bank risk-taking and amplify the impact of bank competition. However, increased local financial risk, enhanced bank regulation, and decreased government intervention will alleviate it. Our study provides new explanations for the creation of zombie companies and new evidence for the “competition-fragility” view.

Keywords: Bank competition; Zombie company; Credit standards; Credit availability; Information asymmetry (search for similar items in EconPapers)
JEL-codes: D21 G21 G28 G34 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:80:y:2023:i:c:p:297-318

DOI: 10.1016/j.eap.2023.08.011

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