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Journal Article

Zombie Lending and Depressed Restructuring in Japan

Ricardo J. Caballero, Takeo Hoshi and Anil K. Kashyap
The American Economic Review
Vol. 98, No. 5 (Dec., 2008), pp. 1943-1977
Stable URL: http://www.jstor.org/stable/29730158
Page Count: 35
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Zombie Lending and Depressed Restructuring in Japan
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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.

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