Did Targeting Financial Constraints During COVID-19 Make Sense?

Boddin, Dominik; D’Acunto, Francesco; Weber, Michael

doi:10.2139/ssrn.3724427

Cited by 7 publications

(6 citation statements)

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“…These positive effects suggests that government support schemes helped to prevent further financial distress so far. This finding is partly confirmed by Boddin et al (2020) showing that the support of credit programs was not important for firms during the first lockdown in spring 2020. The authors observe that firms primarily used retained earnings as a financing source rather than relying on credit.…”

Section: Institutional Setting and Related Literaturementioning

confidence: 65%

“…Bartik, Bertrand, Cullen, Glaeser, Luca, and Stanton, 2020;Cowling, Brown, and Rocha, 2020). As shown by Boddin, D'Acunto, and Weber (2020), retained earnings have become relatively important for German firms in comparison to external financing sources such as bank loans. In this context, SMEs are unlikely to be able to obtain the credit to survive a longer period of hibernation -meaning that firms could reduce all non-essential costs and rely on credit financing to survive (see Didier, Huneeus, Larrain, and Schmukler, 2021).…”

Section: Introductionmentioning

confidence: 99%

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The Impact of German Public Support Transfers on Firm Finance: Evidence from the COVID-19 Crisis

Marek,

Gärtner

2022

SSRN Journal

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Section: Institutional Setting and Related Literaturementioning

confidence: 65%

Section: Introductionmentioning

confidence: 99%

The Impact of German Public Support Transfers on Firm Finance: Evidence from the COVID-19 Crisis

Marek,

Gärtner

2022

SSRN Journal

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“…Policy responses designed to keep businesses afloat included public support on firms' liquidity, such as wage bills and tax relief schemes, moratoriums on credit installment payments, and credit guarantees. Although there is a large consensus about the need for measures that help to flatten the curve of corporate insolvency of otherwise viable firms, there is increasing concern that urgency measures combined with ill-designed screening schemes might have allowed resources to flow into non-viable firms commonly known as zombies Boddin et al (2020).…”

Section: Introductionmentioning

confidence: 99%

Zombie-Lending in the United States -- Prevalence versus Relevance

Göbel¹,

Tavares²

2022

Preprint

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Extraordinary fiscal and monetary interventions in response to the COVID-19 pandemic have revived concerns about zombie prevalence in advanced economies. The literature has already linked this phenomenon -observed over the course of the last two decades -to impeding the performance of healthy firms in Japan and Europe. To make the case for the United States, we analyze banks' and capital markets' zombie-lending practices on the basis of a sample of publicly listed U.S. companies. Our results suggest that zombie prevalence and zombie-lending per se are not a defining characteristic of the U.S. economy. Nevertheless, we find evidence for negative spillovers of zombie-lending on productivity, capital-growth, and employment-growth of non-zombies as well as on overall business dynamism. It is predominantly the class of healthy small-and medium-sized companies that is sensitive to zombie-lending activities, with financial constraints further amplifying these effects.

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“…For each industry, I define the share of noncollege educated workers as the number of non-college educated workers aged 15 or above divided by the total number of workers aged 15 or above. 14 (2) of Table 2 shows that construction industry was the third-largest industry in Japan at that time. Combining these two observations, it is reasonable to characterize construction industry as the most important recruiter of lowskilled workers.…”

Section: Share Of Non-college Educated Workersmentioning

confidence: 99%

“…Such more productive low-skilled industries included (1) wholesale and retail trade industry and (2) processed metals industry. Therefore, if zombie lending 14 The 1997 Survey of Employment Structure also provides information about the gender composition in each industry. Since construction industry predominantly employed male workers, I use this information of gender composition to test whether low-skilled industries that employed relatively more male workers were disproportionately harmed by zombie lending.…”

Section: Share Of Non-college Educated Workersmentioning

confidence: 99%

Zombie “Landing” On Local Labor Markets

Cheung¹

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Japan's construction and real estate firms borrowed heavily from banks in the late 1980s, but many of them became insolvent when the real estate bubble burst in 1991. Instead of recognizing or restructuring problem loans, Japanese banks continued their loans to these "zombie" firms in order to hide the extent of non-performing loans and avoid immediate loss being added to their balance sheets. The literature shows two channels via which zombie lending affects allocative efficiency: (1) loans to zombie firms could be allocated to more productive firms and (2) the presence of inefficient, but subsidized zombie firms deters entry of productive new firms. In this paper, I propose an additional mechanism via which zombie lending undermines allocative efficiencyzombie lending allows unviable construction projects to continue and hoard inputs that may have better alternative uses. Since construction projects mostly hire low-skilled workers without college degree, subsidized loans to construction industry effectively reduce the availability of these low-skilled workers to other industries, which, in turn, disproportionately slows down the growth of low-skilled industries. To empirically probe this mechanism, I put together an industry-level data set on output, employment, and capital utilization in each of Japan's 47 prefectures between 1992 and 1996. The results show that low-skilled industries experienced disproportionately lower growth rate in real value-added, employment, and capital stock in prefectures where zombie lending increased more. In addition, using the detailed data on the number of establishments by age, industry, and prefecture in the same period, I show that zombie lending also disproportionately slowed down firm entry in lowskilled industries. The results suggest that zombie lending disproportionately harmed the growth of low-skilled industries that competed for non-college educated workers with zombie industries in a local labor market in Japan.

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Did Targeting Financial Constraints During COVID-19 Make Sense?

Cited by 7 publications

References 0 publications

The Impact of German Public Support Transfers on Firm Finance: Evidence from the COVID-19 Crisis

The Impact of German Public Support Transfers on Firm Finance: Evidence from the COVID-19 Crisis

Zombie-Lending in the United States -- Prevalence versus Relevance

Zombie “Landing” On Local Labor Markets

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