Zombie Lending to U.S. Firms

Giovanni Favara, Camelia Minoiu and Ander Pérez-Orive
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Ander Pérez-Orive: https://www.federalreserve.gov/econres/ander-perez-orive.htm

No 2024-7, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: We show that U.S. banks do not engage in zombie lending to firms of deteriorating profitability, irrespective of capital levels and exposure to such firms. In contrast, unregulated financial intermediaries do, originating more and cheaper loans to these firms. We establish these results using supervisory data on firm-bank relationships, syndicated lending data for banks and nonbanks, and an empirical setting with quasi-random shocks to firm profitability. Although credit migrates from banks to nonbanks, zombie firms file for bankruptcy at an elevated rate, suggesting that nonbanks’ zombie lending does not enhance the survival rate of distressed and unprofitable firms.

Keywords: zombie lending; zombie firms; banks; nonbanks (search for similar items in EconPapers)
JEL-codes: G21 G32 G33 (search for similar items in EconPapers)
Pages: 55
Date: 2024-08-15
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-fdg
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Published in 2024

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DOI: 10.29338/wp2024-07

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