How do zombie firms affect China’s industrial upgrading?

Luo

et al. 2022

Front. Environ. Sci.

Old industrial bases (municipal districts) play a decisive role in the process of China’s economic development. This study focuses on the upgrading of urban industrial structure. Based on the panel data of 120 old industrial bases (municipal districts) in China from 2010 to 2018, a double difference model was established to empirically analyze the impact of pilot relocation and reconstruction policies on the upgrading of urban industrial structure in old industrial districts. The results demonstrate that 1) The pilot relocation and reconstruction policies play a significant role in promoting the upgrading of urban industrial structure in old industrial districts; 2) Upgrading of urban industrial structure is significantly affected by the urban economic development level, urban population density, land marketization level, industrial enterprise agglomeration degree and infrastructure construction; 3) The impact of relocation and reconstruction policies on the upgrading of urban industrial structure in old industrial districts exhibits certain regional heterogeneity. Finally, some targeted suggestions are proposed for future formulation of effective policies for the relocation and reconstruction of old industrial areas and optimal allocation of urban industrial structure.

Section: Literature Reviewmentioning

confidence: 99%

Impact of relocation and reconstruction policies on the upgrading of urban industrial structure in old industrial districts

Luo

et al. 2022

Front. Environ. Sci.

“…Zombie firms have problems such as low productivity (McGowan et al 2018), insufficient innovation (Wang et al 2018), and poor profitability (Cai et al 2022). Zombie firms increase the cost of debt financing of non‐zombie firms (Yu et al 2020), squeeze out investment and employment in non‐zombie firms (Shen and Chen 2017; Wang and Zhu 2021); damage healthy firms associated with zombie firms (Dai et al 2021); and lead to ineffective allocation of financial capital (Geng et al 2021; Wang and Zhu 2021), which causes great harm to society (Kwon et al 2015). However, the process of disposing of zombie firms often faces high financial risks, which may affect employment and fiscal revenue.…”

Section: Introductionmentioning

confidence: 99%

“…Previous studies also considered that poor financial conditions (Ivana and Dvouletý 2020; Cai et al 2022), government intervention (Chang et al 2020; Geng et al 2021), and bank intervention (Caballero et al 2008) lead to the formation of zombie enterprises, but tended to ignore the important role of political connections in their formation (Bussolo et al 2022). Related studies show that political connections have a negative impact on investment behaviour (Liu et al 2019) and investment efficiency (Li and Jin 2021) of firms, which may lead to ‘zomibification’ of firms.…”

Section: Introductionmentioning

confidence: 99%

How do political connections affect the formation of zombie firms? Evidence from Chinese manufacturing listed enterprises

Shao

Chen

Liu

2022

Asian-Pac Economic Lit

Zombie firms that rely on government subsidies and bank loans have seriously affected the healthy development of economies. This paper uses data from Chinese listed manufacturing enterprises from 2007 to 2017 to test and analyse the relationship between political connections and zombie enterprises. The study finds: (i) political connections are positively correlated with the 'zombification' of enterprises; (ii) credit subsidies play an intermediary role between political connections and 'zombification' of enterprises, with the acquisition of large credit subsidies the main path to the 'zombification' of politically connected enterprises; and (iii) firms that have political connections may use credit subsidies for inefficient over-investment. This study has value for other countries in clarifying the causes of zombie firms and preventing politically connected enterprises from becoming zombie firms.

“…For developing countries, governments should utilize the appropriate "helping hands" to assist healthy enterprises with the potential to develop further based on market-oriented principles, so as to gradually dispose of the problems of zombie firms. Government intervention, such as financial support for zombie firms and preferential industrial policies in the name of boosting the economy, must be reduced (Han et al, 2019;Geng et al, 2021). In conclusion, an efficient zombie firm screening mechanism, a bankruptcy procedure that promotes redistribution, and the appropriate government intervention mechanism will aid in the alleviation of the zombie firm problems.…”

Section: Introductionmentioning

confidence: 99%

The Role of Zombie Firms in Industrial Sustainable Development: Evidence From Yangtze River Delta Urban Agglomerations

Wang

Kong

Shi

2022

Front. Environ. Sci.

The development of the regional economy is of major concern against the backdrop of the “new normal.” As a problem that has persisted in China for decades, zombie firms have a negative impact on regional and industrial sustainable development. This study first presents a novel method for identifying zombie firms and then analyzes the characteristics of zombie firms in the Yangtze River Delta Urban Agglomerations during a specified period. A fixed-effect model is used to examine the impact of firm zombification on normal enterprise investment. Despite the low level of zombification of industrial enterprises in the Yangtze River Delta Urban Agglomeration, the results of the study indicate that it has a considerable negative influence on enterprise investment. After applying multiple methods for robustness testing and constructing instrumental variables to solve the endogeneity problem, our results have remained stable. The carbon intensity effect and the competitive weakening effect are also examined as two impact mechanisms. Our findings have significant theoretical and practical ramifications: 1) It introduces a novel concept for defining zombie firms, which will aid in the improvement of the technique of identifying zombie firms based on the Chinese Industrial Enterprise Database; 2) It proposes a novel approach to zombie firm research, and it is critical to better understand the harmful effects of zombie firms on industrial sustainable development and to make specific efforts to address them; 3) It makes recommendations to the government on how to establish industrial policy. The policy tilt towards state-owned enterprises should be adjusted, while regional economic characteristics should be fully considered to ensure the sustainable development of the industry and the region.