Zombie-Lending in the United States -- Prevalence versus Relevance

TL;DR

This paper investigates the prevalence and impact of zombie-lending in the U.S., finding it not widespread but with significant negative effects on healthy small and medium-sized companies and overall economic dynamism.

Contribution

It provides empirical evidence that zombie-lending is not widespread but has notable negative spillovers, especially on small and medium-sized healthy firms, amplified by financial constraints.

Findings

Zombie-lending is not widespread in the U.S.

Negative spillovers affect productivity and employment growth.

Financial constraints amplify zombie-lending effects.

Abstract

Extraordinary fiscal and monetary interventions in response to the COVID-19 pandemic have revived concerns about zombie prevalence in advanced economies. Within a sample of publicly listed U.S. companies, we find zombie prevalence and zombie-lending not to be a widespread phenomenon per se. Nevertheless, our results reveal negative spillovers of zombie-lending on productivity, capital-growth, and employment-growth of non-zombies as well as on overall business dynamism. It is predominantly the class of healthy small- and medium-sized companies that is sensitive to zombie-lending activities, with financial constraints further amplifying these effects.