Zombie firms and over-capacity in Chinese manufacturing

Shen, Guangjun; Chen, Binkai

doi:10.1016/j.chieco.2017.05.008

Cited by 140 publications

(74 citation statements)

References 20 publications

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“…The dependent binary variable ZOM has mean 0.101 indicating 10.1% of observations in our sample are identified as zombie firms. This proportion is consistent with the results using FN-CHK model in other studies (Shen and Chen, 2017). This is however lower than the results of about 20% of those who simply use the CHK model (Jiang et al, 2017).…”

Section: Descriptive Statisticssupporting

confidence: 91%

“…In order to avoid these two types of errors, Fukuda and Nakamura (2011) modify the CHK measure using the "profit standard" and "evergreen loan standard" (FN-CHK). Due to the high accuracy of recognition, the FN-CHK model is widely used in the study of zombie firms (Han et al, 2019;Jiang et al, 2017;Shen and Chen, 2017;Tan et al, 2016). We use the FN-CHK model to identify zombie firms according to the following three steps.…”

Section: Identifying Zombie Firmsmentioning

confidence: 99%

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Lie of the weak: Inconsistent corporate social responsibility activities of Chinese zombie firms

Han

Lubrano

et al. 2020

Journal of Cleaner Production

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This study investigates the differences between zombie firms and non-zombie firms in corporate social responsibility activities such as reporting, disclosure and fulfillment. Using Chinese listing company data collected from 2009 to 2016, we apply a three stage model with a double Heckman correction to deal with potential self-selection/endogeneity bias and to measure the differences consistently. We found that zombie firms are less willing to release standalone corporate social responsibility reports than non-zombie firms. Among companies that release standalone corporate social responsibility reports, the corporate social responsibility disclosure of zombie firms is at least not worse than non-zombie firms, but the corporate social responsibility fulfillment is significantly lower. We conclude from this gap between disclosure and fulfillment to the hypocritical behavior of zombie firms, due to the absence of control in corporate social responsibility. We suggest that government should enhance supervision over zombie firms' corporate social responsibility activities and subsidies towards them in order to lower their economic damage. Supplementary analyses provide some clues concerning the heterogeneity of inconsistence in term of external support characteristics, ownership and censorship which require further studies.

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Section: Descriptive Statisticssupporting

confidence: 91%

Section: Identifying Zombie Firmsmentioning

confidence: 99%

Lie of the weak: Inconsistent corporate social responsibility activities of Chinese zombie firms

Han

Lubrano

et al. 2020

Journal of Cleaner Production

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“…When zombie firms are linked to the overcapacity problem, the countercyclical pattern is more intuitive. Zombie firms are found to cause and worsen overcapacity in China by crowding out healthy firms (Shen and Chen, 2017). Drawing on international experience, one can observe that zombie firms are prone to appear in industries that are tied to cycles of economic growth, such as housing, steel and automobile.…”

Section: This Shock Negatively Affected the Profitability Of Chinese mentioning

confidence: 99%

Zombie Firms and Debt Accumulation: A Theoretical Framework and Chinese Experience

Zhu

Wang

et al. 2019

China and World Economy

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In recent years, as China has grappled with rising debt and broad economic restructure, the prevalence of zombie firms has become a critical problem. This paper provides a theoretical framework illustrating the rationale behind the occurrence of zombie firms from the perspective of banks. We develop differential equations to model a bank's expectation and the ex ante estimate that underlies its decision to refinance an insolvent borrower. An optimistic expectation is essential in zombie lending and is intrinsic to the countercyclical pattern of zombie firms. Our model also predicts that debt can build up to an unsustainable level if recovery of profitability is sluggish or the initial debt burden is too high. Examining the Chinese experience of zombie firms over 2007−2017, this paper highlights two findings. First, the share of zombie firms among Shanghai and Shenzhen A-share listed companies demonstrates a countercyclical pattern. Second, the positive correlation between zombie share and debt accumulation across manufacturing sectors sheds light on the link between zombie firms and the rising corporate debt in China. To deal with the "zombie" problem, the government should carefully weigh its policies to avoid further distortions because the occurrence of zombie firms may be inevitable and impossible to eliminate.

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“…If China's economic growth slows further or if the Chinese government's deleveraging policy leads to turmoil in credit markets, it is not unreasonable to imagine that certain types of liquidity or debt crisis may occur, at least in certain regions or industries. For example, in industries with overcapacity, such as coal, steel, and cement, and in the West, North, and Northeast regions, such as Ningxia, Qinghai, Hebei, Shanxi, Heilongjiang, and Jilin, there are numerous so‐called ‘zombie firms’ facing insolvency problems (Lam et al ; Shen and Chen ). Financial distress in these firms and industries is so severe that the Economist Intelligence Unit (EIU) () reports that it would take 91 years and 74 years, respectively, for the coal and ferrous‐metal (including steel) smelting industries to pay back their debts.…”

Section: China's Financial Repression and Financial Vulnerabilitymentioning

confidence: 99%

From financial repression to financial crisis? The case of China

Gui

2019

Asian-Pac Economic Lit

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This study explores the connections between financial repression policies and the possibility of financial crisis, a relationship that has been overlooked in previous literature. We focus on China, a country with one of the highest levels of financial repression in the world. China's case shows that when financial repression is maintained at a modest level, as the government did before 2008, the possibility of a financial crisis is low; however, when financial repression policies are pushed to an excessive level, as the government did after 2008, the national asset‐liability structure may be damaged to such an extent that a financial crisis becomes likely. The key to understanding the changing role of China's financial repression policies lies in the survival strategy of the Chinese party‐state, which regards finance as a powerful weapon and is eager to use it to address certain economic, political, or social problems that may endanger its rule.

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Zombie firms and over-capacity in Chinese manufacturing

Cited by 140 publications

References 20 publications

Lie of the weak: Inconsistent corporate social responsibility activities of Chinese zombie firms

Lie of the weak: Inconsistent corporate social responsibility activities of Chinese zombie firms

Zombie Firms and Debt Accumulation: A Theoretical Framework and Chinese Experience

From financial repression to financial crisis? The case of China

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