How do zombie firms affect the financialization of normal firms?

ABSTRACT

This study examines the relationship between zombie firms and the financialization of normal firms in the context of ‘from real to virtual’. Using data of Chinese listed firms from 2008 to 2019, we find that zombie firms increase the financialization of normal firms. Further, mediating mechanism tests show that total factor productivity and bank loans are two major channels. Moreover, we find that the motivation of corporate financialization is ‘capital arbitrage’, rather than ‘capital reserve’. This study explains the motivation and impact of the financialization of Chinese non-financial companies, elucidates the necessity of disposing of zombie firms, and promotes high-quality economic development.

KEYWORDS:

• Zombie firms
• financialization
• bank loans
• non-financial companies
• total factor productivity

JEL CLASSIFICATION:

• D43
• G38
• G32
• C23

Acknowledgments

The authors are thankful for the funding support from the National Natural Science Foundation of China (No. 71873027); and Humanities and Social Science Foundation of Ministry of Education of China (18YJA790063).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Data available on request from the authors. The data that support the findings of this study are available from the corresponding author upon reasonable request.

CRediT authorship contribution statement

Yong Qi: Writing - review & editing; Simeng Lyu: Conceptualization, Methodology, Writing - original draft; Shuo Yang: Data curation; Shaoyu Dong: Software.

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/13504851.2022.2086678.

Notes

¹ Firms whose earnings before interest and tax (EBIT) exceed the hypothetical risk-free interest payments are not categorized as zombie firms.

² Firms that are unprofitable and highly leveraged (higher than 0.5) with increased external borrowings are categorized as zombie firms.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71873027]; Humanities and Social Science Foundation of Ministry of Education of China [18YJA790063].