Zombie Lending and Depressed Restructuring in Japan
- (pp. 1943-77)
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)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.98.5.1943Additional Materials
JEL Classification
- 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