Zombie Lending: Theoretical, International and Historical Perspectives

Viral Acharya, Matteo Crosignani, Tim Eisert and Sascha Steffen

No 29904, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper surveys the theory on zombie lending incentives and the consequences of zombie lending for the real economy. It also offers a historical perspective by reviewing the growing empirical evidence on zombie lending along three dimensions: (i) the role of under-capitalized banks, (ii) effects on zombie firms, and (iii) spillovers and distortions for non-zombie firms. We then provide an overview of how zombie lending can be attenuated. Finally, we use a sample of U.S. publicly listed firms to compare various measures proposed in the literature to classify firms as "zombies." We identify definitions of zombie firms that are adequate to investigate economic inefficiency in the form of real sector competitive distortions of zombie lending. We find that only definitions that are based on interest rate subsidies are able to detect these spillovers and thereby provide evidence in support of credit misallocation.

JEL-codes: E44 E58 G01 G2 G3 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-fdg, nep-his and nep-mac
Note: CF EFG ME
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Citations: View citations in EconPapers (27)

Published as Viral V. Acharya & Matteo Crosignani & Tim Eisert & Sascha Steffen, 2022. "Zombie Lending: Theoretical, International, and Historical Perspectives," Annual Review of Financial Economics, vol 14(1).

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Journal Article: Zombie Lending: Theoretical, International, and Historical Perspectives (2022)
Working Paper: Zombie Lending: Theoretical, International, and Historical Perspectives (2022)
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