Unearthing Zombies

Nirupama Kulkarni, S. K. Ritadhi, Siddharth Vij and Katherine Waldock
Additional contact information
S. K. Ritadhi: Ashoka University
Siddharth Vij: University of Georgia
Katherine Waldock: Columbia Law School

Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL)

Abstract: Since ineffective debt resolution perpetuates zombie lending, bankruptcy reform has emerged as a solution. We show, however, that lender-based frictions can limit reform impact. Exploiting a unique empirical setting and novel supervisory data from India, we document that a new bankruptcy law had muted effects on lenders recognizing zombie borrowers as non-performing. A subsequent unexpected regulation, targeting perverse lender incentives to continue concealing zombies, increased zombie recognition particularly for undercapitalized and government-owned banks, highlighting the role of bank capital and political frictions in sustaining zombie lending. Resolving zombie loans allowed lenders to reallocate credit to healthier borrowers who increased investment.

Keywords: Zombie; Bankruptcy; Banking Regulation; India; Creative Destruction (search for similar items in EconPapers)
JEL-codes: F34 G23 G28 G33 K42 O53 (search for similar items in EconPapers)
Pages: 62
Date: 2021-03
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Related works:
Journal Article: Unearthing Zombies (2025)
Working Paper: Unearthing Zombies (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:cafral:022292

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