Credit Guarantees and Zombie Firms

Scott Wilbur
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Scott Wilbur: Yale University [New Haven], FFJ - Fondation France-Japon de l'EHESS - EHESS - École des hautes études en sciences sociales

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Abstract: In recent years and particularly since the global financial crisis, zombie firms—unprofitable businesses supported by financial relief—have generated widespread concern due to their purported harm to economic vitality. Economic studies hold that zombie firms impede the normal flow of capital and human resources to healthy businesses, and thereby defy creative destruction and hurt investment and employment growth. But what causes zombie firms to occur? Addressing this question from a political economy perspective, this paper investigates a novel hypothesis about the role of credit guarantees in supporting weak firms. The results of a case study of small and medium-sized enterprises (SME) in Japan in the 1990s and 2000s suggest that Japan's credit guarantee system may indeed have contributed to numerous zombies among this firm category. However, evidence also suggests that these firms tended to quickly escape from zombie status, calling into question the negative connotation of the zombie firm concept.

Keywords: social policy; economic performance; institutional change; Japan; political economy; public policy (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-ent, nep-fdg and nep-sbm
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