ABSTRACT
The existence of zombie firms is one of the more notable problems in many transition economies since these companies can hamper sustainable economic development. This paper examines the impact of credit access on the existence and recovery of zombie firms. Using a comprehensive dataset comprising a large number of firms operating in Vietnam during the period from 2006 to 2015, we find that having access to credit reduces the likelihood that a firm is a zombie. We also find that credit access is only useful for firms to escape from being zombies up to a certain threshold. While access to credit reduces the likelihood of private domestic firms being zombies, the study finds that it has no significant effect on state-owned and foreign invested firms. Moreover, the impact of credit access is only detected when firms borrow from formal sources of credit.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1. Fresard (Citation2010) and Campello (Citation2006) show that a cash-rich firm can use its “war chest” to finance competitive strategies, including geographic location, which is one of the factors of a company’s competitive advantage, the construction of efficient distribution networks, the use of advertising targeted against rivals, or the employment of more productive workers.
2. Ideally, the endogeneity problem can be solved by the 2SLS estimation method. Nonetheless, the limited data availability prevented us from identifying an appropriate instrumental variable to conduct the 2SLS estimation method. This limitation is further acknowledged and discussed in the conclusion section.