The Review of Corporate Finance Studies Vol. 9 No. 3 2020

Identifying the Real Effects of Zombie Lending

Fabiano Schivardi¹; Enrico Sette²; Guido Tabellini³

¹ Luiss University, EIEF, and CEPR · ² Bank of Italy · ³ Bocconi University, IGIER, CEPR, CES-Ifo, and CIFAR

Abstract

The policy response to COVID-19 includes the provision of credit guarantees to firms, a provision that may generate zombie lending. According to the recent literature, the relative performance of healthy firms deteriorates as the fraction of zombies increases. We argue that this literature faces a serious identification problem, because firm performance is often used to define zombies (sometimes implicitly). We show that, under general conditions for the distribution of firm performance, the correlation between healthy firm performance and zombies is a mechanical consequence of an increase in the fraction of zombies with no causal meaning.

DOI

10.1093/rcfs/cfaa010

Volume

9

Issue

3

Pages

569-592

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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