Innovation and zombie firms: Empirical evidence from Italy

Andrea Ascani (andrea.ascani@gssi.it) and Lakshmi Balachandran Nair (lbalachandrannair@luiss.it)
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Andrea Ascani: Gran Sasso Science Institute
Lakshmi Balachandran Nair: LUISS Guido Carli University

No 2023-03, Discussion Paper series in Regional Science & Economic Geography from Gran Sasso Science Institute, Social Sciences

Abstract: Whilst most governments’ supportive measures have kept businesses afloat during the most depressing stages of the COVID-19 pandemic, these massive liquidity injections can also hide the risk of keeping financially fragile firms alive artificially, thus starting a process that turns them into zombie firms (zombies). In this article, we investigate whether and under what circumstances the presence of zombies in an industry constitutes a barrier to the innovativeness of non-zombies in the same sector. By analysing matched patent-firm data from Bureau van Dijk ORBIS Intellectual Property on 426,130 Italian firms from 2012 to 2018, we find evidence in favour of negative intraindustry spillovers. Nonetheless, this general relationship is subject to various contingencies connected to both industry and firm characteristics. Specifically, we highlight that the retention of zombies can congest the innovative activities of healthy firms, especially when they depend on external sources of finance, operate in highly competitive markets, are more exposed to the erosion of their market shares, and do not possess a pre-existing strong knowledge base. Our findings have relevant policy and managerial implications.

Keywords: zombie firms; innovation; Italy; spillovers; poisson; instrumental variable (search for similar items in EconPapers)
JEL-codes: D22 L20 O31 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2023-06, Revised 2024-10
New Economics Papers: this item is included in nep-bec, nep-cse, nep-ent, nep-fdg, nep-ino, nep-inv and nep-sbm
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