Zombie Lending and Depressed Restructuring in Japan

Ricardo Caballero (), Takeo Hoshi and Anil Kashyap

American Economic Review, 2008, vol. 98, issue 5, 1943-77

Abstract: Large Japanese banks often engaged in sham loan restructurings that kept credit flowing to otherwise insolvent borrowers (which we call zombies). We examine the implications of suppressing the normal competitive process whereby the zombies would shed workers and lose market share. The congestion created by the zombies reduces the profits for healthy firms, which discourages their entry and investment. We confirm that zombie-dominated industries exhibit more depressed job creation and destruction, and lower productivity. We present firm-level regressions showing that the increase in zombies depressed the investment and employment growth of non-zombies and widened the productivity gap between zombies and non-zombies. (JEL G21, G32, L25)

JEL-codes: G21 G32 L25 (search for similar items in EconPapers)
Date: 2008
Note: DOI: 10.1257/aer.98.5.1943
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Citations: View citations in EconPapers (884)

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Related works:
Working Paper: Zombie Lending and Depressed Restructuring in Japan (2006)
Working Paper: Zombie Lending and Depressed Restructuring in Japan (2006)
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