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American Economic Review: Vol. 98 No. 5 (December 2008)
AER Volume. 98, Issue 5 | 
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Zombie Lending and Depressed Restructuring in Japan
Article Citation
Caballero, Ricardo J.,
Takeo Hoshi, and
Anil K. Kashyap. 2008. "Zombie Lending and Depressed Restructuring in Japan."
American Economic Review,
98(5): 1943-77.
DOI: 10.1257/aer.98.5.1943
DOI: 10.1257/aer.98.5.1943
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)
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Authors
Caballero, Ricardo J. (MIT)
Hoshi, Takeo (U CA, San Diego and Tokyo Center for Economic Research)
Kashyap, Anil K. (U Chicago and Federal Reserve Bank of Chicago)
Hoshi, Takeo (U CA, San Diego and Tokyo Center for Economic Research)
Kashyap, Anil K. (U Chicago and Federal Reserve Bank of Chicago)
JEL Classifications
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
L25: Firm Performance: Size, Diversification, and Scope
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
L25: Firm Performance: Size, Diversification, and Scope
