The crowding-out effect of zombie companies on fixed asset investment: Evidence from China

Meixu Ren, Jinxuan Zhao and Jingmei Zhao

Research in International Business and Finance, 2023, vol. 65, issue C

Abstract: This paper attempts to investigate the relationship between zombie companies and normal companies' fixed asset investment. Our empirical research finds that zombies will crowd out the fixed asset investment of normal companies, and this result remains stable under many robustness tests. Heterogeneity analysis reveals that the crowding-out effect mainly exists in non-SOEs, companies with small tax contributions, and companies in light industries, while SOEs, companies with large tax contributions, and heavy industrial sectors are unaffected by zombies. It's also shown that zombie companies crowd out fixed asset investment by increasing financing constraints, raising financing costs and destroying the industry's competitive environment. We further find that improving the regional institutional environment can alleviate zombies' crowding-out effect. Overall, our paper enriches the research on zombie companies' negative impact on normal companies and emphasizes the importance of strengthening the construction of the institutional environment.

Keywords: Zombie company; Investment crowding-out; Financing constraints; Institutional environment (search for similar items in EconPapers)
JEL-codes: E22 G31 P31 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923001058

DOI: 10.1016/j.ribaf.2023.101979

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