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American Economic Review Vol. 98 No. 5 2008

Zombie Lending and Depressed Restructuring in Japan

Ricardo J. Caballero1; Takeo Hoshi2; Anil Kashyap3

1 Massachusetts Institute of Technology, Department of Economics, 50 Memorial Drive, Cambridge MA 02139, and National Bureau of Economic Research. · 2 School of International Relations and Pacific Studies, University of California at San Diego, 9500 Gilman Drive, La Jolla, CA 92093-0519, National Bureau of Economic Research, and Tokyo Center for Economic Research. · 3 University of Chicago, Graduate School of Business, 5807 S. Woodlawn Avenue, Chicago, IL, 60637, Federal Reserve Bank of Chicago, and National Bureau of Economic Research.

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.

DOI
10.1257/aer.98.5.1943
Volume
98
Issue
5
Pages
1943-1977
Language
en
Sources
crossref openalex bibtex:phds-export.bib

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