Administrative reform and the disposal of zombie enterprises: evidence from China

Linlin Fan (), Tingfeng Tang () and Gongyan Yang ()
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Linlin Fan: Southwestern University of Finance and Economics
Tingfeng Tang: Southwestern University of Finance and Economics
Gongyan Yang: Liaoning University

Small Business Economics, 2023, vol. 61, issue 4, No 18, 1845-1869

Abstract: Abstract The study investigates the effects of drastic institutional changes on the reduction of zombie enterprises in China and the underlying mechanisms of this relationship. We employed data from the ASIF from 1998 to 2007 and adapted the difference-in-difference approach to analyze the effects based on China’s investment approval system reform. We find that the reform can reduce the proportion of zombie enterprises by 13.3%. This result is driven by competition and scale effects. The former reduces institutional transaction costs by 12.8% and increases innovation capacity by 6.1%. The latter significantly improves the total factor productivity of enterprises; the reform promoted the expansion of enterprise size by 7.1% and the enhancement of market accommodation capacity by 13.2%. The reform had a weak effect on state-owned and non-competitive industrial zombie enterprises. This paper contributes to debates concerning the effect of institutions on entrepreneurship and the disposal of small zombie enterprises.

Keywords: Zombie enterprises; Approval system reform; Total factor productivity; Firm innovation; Entrepreneurship (search for similar items in EconPapers)
JEL-codes: D21 L26 M11 P21 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11187-023-00752-8

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