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. (JEL E44, G21)

Identifying the Real Effects of Zombie Lending / Schivardi, Fabiano; Sette, Enrico; Tabellini, Guido. - In: THE REVIEW OF CORPORATE FINANCE STUDIES. - ISSN 2046-9128. - 9:3(2020), pp. 569-592. [10.1093/rcfs/cfaa010]

Identifying the Real Effects of Zombie Lending

Fabiano Schivardi;
2020

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. (JEL E44, G21)
E44 - Financial Markets and the Macroeconomy G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/195915
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