Can government funding revive zombie enterprises? Evidence from listed Chinese manufacturing enterprises
Abstract
This study tests how different types of government funding affect the recovery of zombie enterprises in the manufacturing sector of China. The results show that funding for production and innovation can revive zombie enterprises in expanding industries, while funding for interest cannot. Furthermore, funding for production and innovation can share costs, increase investment in selling or innovation, and promote the scaling down of businesses through external governance effects, helping zombie enterprises to recover. Finally, none of the funding types can revive zombie enterprises in contracting industries; these can recover only through access to larger overseas markets.
Keyword : government funding, zombie enterprises, recovery mechanism, industry life cycle, Chinese economy, transformation and upgrading
How to Cite
Yang, Y., Qi, Y., & Yang, S. (2021). Can government funding revive zombie enterprises? Evidence from listed Chinese manufacturing enterprises. Journal of Business Economics and Management, 22(6), 1633-1654. https://doi.org/10.3846/jbem.2021.15334
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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China National Intellectual Property Administration. (2009). Patent search and analysis. http://pss-system.cnipa.gov.cn/sipopublicsearch/portal/uiIndex.shtml
Clausen, T. H. (2009). Do subsidies have positive impacts on R&D and innovation activities at the firm level? Structural Change and Economic Dynamics, 20(4), 239–253. https://doi.org/10.1016/j.strueco.2009.09.004
Dai, X., Qiao, X., & Song, L. (2019). Zombie firms in China’s coal mining sector: identification, transition determinants and policy implications. Resources Policy, 62, 664–673. https://doi.org/10.1016/j.resourpol.2018.11.016
Fang, M., & Sun, K. (2019). Can mixed ownership reform of SOEs cure zombie firms? A mixed ownership pecking order logic. Journal of Financial Research, 463(1), 91–110. (In Chinese). http://www.jryj.org.cn/CN/Y2019/V463/I1/91
Fukuda, S., & Nakamura, J. (2011). Why did “zombie” firms recover in Japan? World Economy, 34(7), 1124–1137. https://doi.org/10.1111/j.1467-9701.2011.01368.x
Gao, J., & Li, M. (2018). Dealing strategies of “zombie enterprises”: A review of domestic research. Contemporary Economics, 1, 36–39. (In Chinese).
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw-Hill. https://cbpbu.ac.in/userfiles/file/2020/STUDY_MAT/ECO/1.pdf
Heckman, J. J. (1979). Sample selection bias as a specification error. Econometrica, 47, 153–161. https://doi.org/10.2307/1912352
Huang, S., & Chen, Y. (2017). The distribution features and classified disposition of China’s zombie firms. China Industrial Economics, 3, 24–43. (In Chinese). https://doi.org/10.19581/j.cnki.ciejournal.2017.03.002
Huang, T., & Guo, K. (2019). Research on state-owned zombie firm’s exit mechanism based on evolutionary game theory. Business Management Journal, 5, 5–20. (In Chinese). https://doi.org/10.19616/j.cnki.bmj.2019.05.001
Huergo, E., & Moreno, L. (2017). Subsidies or loans? Evaluating the impact of R&D support programmes. Research Policy, 46(7), 1198–1214. https://doi.org/10.1016/j.respol.2017.05.006
Imai, K. (2016). A panel study of zombie SMEs in Japan: Identification, borrowing and investment behavior. Journal of the Japanese and International Economies, 39, 91–107. https://doi.org/10.1016/j.jjie.2015.12.001
Jaskowski, M. (2015). Should zombie lending always be prevented? International Review of Economics and Finance, 40, 191–203. https://doi.org/10.1016/j.iref.2015.02.023
Jiang, L., & Lu, Y. (2017). Does minimum wage standard inhibit the formation of new zombie firms. China Industrial Economics, 11, 118–136. (In Chinese). https://doi.org/10.19581/j.cnki.ciejournal.2017.11.010
Jiang, L., Lu, Y., & Chen, Y. (2018). Can market mechanism help to cure zombie firm? Evidence from FDI liberation. The Journal of World Economy, 9, 121–145. (In Chinese).
Jiang, H., & Wang, X. (2018). A study on the “zombie firms” problem of listed companies-an empirical analysis of cause and revival based on logit model. East China Economic Management, 32(10), 161–167. (In Chinese). https://doi.org/10.19629/j.cnki.34-1014/f.180606002
Kane, E. (1987). Dangers of capital forbearance: The case of the FSLIC and “zombie” S&Ls. Contemporary Economic Policy, 5(1), 77–83. https://doi.org/10.1111/j.1465-7287.1987.tb00247.x
Kwon, H., Narita, F., & Narita, M. (2015). Resource reallocation and zombie lending in Japan in the 1990s. Review of Economic Dynamics, 18(4), 709–732. https://doi.org/10.1016/j.red.2015.07.001
Li, X., Lu, J., & Jin, X. (2018). Zombie firms and tax distortion. Management World, 34(4), 127–139. (In Chinese). https://doi.org/10.3969/j.issn.1002-5502.2018.04.011
Lin, Y. P. (2011). Zombie lending, financial reporting opacity and contagion. National University of Singapore. https://scholarbank.nus.edu.sg/handle/10635/77714
Liu, G., Zhang, X., Zhang, W., & Wang, D. (2019). The impact of government subsidies on the capacity utilization of zombie firms. Economic Modelling, 83, 51–64. https://doi.org/10.1016/j.econmod.2019.09.034
Luan, Q., Luo, S., Xiong, Q., & Luo, J. (2018). Can government R&D subsidies save zombie firms? An empirical study based on small and medium-sized enterprises in Shanghai. Forum on Science and Technology in China, 10, 39–45. (In Chinese). https://doi.org/10.13580/j.cnki.fstc.2018.10.005
Maksimovic, V., & Phillips, G. (2008). The industry life cycle, acquisitions and investment: Does firm organization matter? Journal of Finance, 63(2), 673–708. https://doi.org/10.1111/j.1540-6261.2008.01328.x
Markides, C. C. (1995). Diversification, restructuring and economic performance. Strategic Management Journal, 16(2), 101–118. https://doi.org/10.1002/smj.4250160203
Meuleman, M., & Maeseneire, W. D. (2012). Do R&D subsidies affect SMEs’ access to external financing? Research Policy, 41(3), 580–591. https://doi.org/10.2139/ssrn.1099346
Nakamura, J., & Fukuda, S. (2013). What happened to “zombie” firms in Japan?: Reexamination for the lost two decades. Global Journal of Economics, 2(2), 1–18. https://doi.org/10.1142/S2251361213500079
Nie, H., Jiang, T., Zhang, Y., & Fang, Y. (2016). Research report on Chinese zombie enterprises: Current situation, reasons and countermeasures. Serial Reports of National Academy of Development and Strategy, RUC, 9. (In Chinese).
Niu, L., & Gao, L. (2018). Government subsidy saves life or continues life: An analysis of causes of zombie firms. Science–Technology and Management, 20(3), 86–96. (In Chinese). https://doi.org/10.16315/j.stm.2018.03.006
Peek, J. (2008). The contribution of bank lending to the long-term stagnation in Japan. University of Kentucky.
Peng, H., Mao, X., & Zhang, Y. (2020). Government innovation subsidy and executives entertainment spending perks – considering the effect of external governance and positive emotion. Management Review, 32(3), 122–135. (In Chinese). https://doi.org/10.14120/j.cnki.cn11-5057/f.2020.03.014
Porter, M. E. (1990). The competitive advantage of nations. Macmillan.
Rao, J., & Wan, L. (2018). Government subsidy, heterogeneity and the formation of zombie firms: Evidence from China’s listed companies. Accounting Research, (3), 3–11. (In Chinese). https://doi.org/10.3969/j.issn.1003-2886.2018.03.001
Shen, G. (2016). Comparative advantages and zombie firms: A study based on new structural economics. Management World, (12), 13–24. (In Chinese). https://doi.org/10.19744/j.cnki.11-1235/f.2016.12.003
Shen, G., & Chen, B. (2017). Can mixed ownership zombie firms and over-capacity in Chinese manufacturing. China Economic Review, 44, 327–342. https://doi.org/10.1016/j.chieco.2017.05.008
Song, J., Su, Z., & Wang, D. (2019). Government subsidies and the formation of zombie firms: based on constraint types of firms. Finance & Trade Economics, 40(4), 5–19. (In Chinese). https://doi.org/10.3969/j.issn.1002-8102.2019.04.002
Tan, Y., Tan, Z., Huang, Y., & Wing, T. W. (2017). The crowding-out effect of zombie firms: Evidence from China’s industrial firms. Economic Research Journal, 5, 175–188. (In Chinese). http://voxchina.org/show-3-128.html
Tan, Y., Huang, Y., & Woo, W. T. (2016). Zombie firms and the crowding-out of private investment in China. Asian Economic Papers, 15(3), 32–55. https://doi.org/10.1162/ASEP_a_00474
Wang, Y., Li, W., & Dai, Y. (2018). How do zombie firms affect innovation? Evidence from China’s industrial firms. Economic Research Journal, 11, 99–114. (In Chinese).
Wang, W., & Liu, X. (2018). Why do zombie firms survive for a long time. China Industrial Economics, 10, 61–79. (In Chinese). https://doi.org/10.19581/j.cnki.ciejournal.2018.10.004
Xu, K., Geng, C., Wei, X., & Jiang, H. (2020). Financing development, financing constraint and R&D investment of strategic emerging industries in China. Journal of Business Economics and Management, 21(4), 1010–1034. https://doi.org/10.3846/jbem.2020.12727
Zhang, A., Wang, S., Liu, B., & Fu, J. (2020a). The double-edged sword effect of diversified operation on pre- and post-loan risk in the government-led Chinese commercial banks. North American Journal of Economics and Finance, 54, 101246. https://doi.org/10.1016/j.najef.2020.101246
Zhang, C., Chen, Y., & Zhou, H. (2020b). Zombie firms and soft budget constraints in the Chinese stock market. Asian Economic Journal, 34(1), 51–77. https://doi.org/10.1111/asej.12194
Zhang, D., Xie, Z., & Wang, J. (2016). China’s zombie companies and their detection – an exploratory research based on listed companies in iron and steel industry. China Industrial Economics, 11, 90–107. (In Chinese). https://doi.org/10.19581/j.cnki.ciejournal.2016.11.008
Zhou, J., Xian, G., & Ming, X. (2018). The recognition and warning of zombie enterprises: Evidence from Chinese listed companies. Journal of Finance and Economics, 44(4), 130–142. (In Chinese). https://doi.org/10.16538/j.cnki.jfe.2018.04.010
Zhu, Z., Zhang, S., & Huang, X. (2018). Can outward direct investment cure zombie firms – a study based on the perspective of firm-level markups. Journal of International Trade, 8, 108–120. (In Chinese). https://doi.org/10.13510/j.cnki.jit.2018.08.009
Caballero, R. J., Hoshi, T., & Kashyap, A. K. (2008). Zombie lending and depressed restructuring in Japan. American Economic Review, 98(5), 1943–1977. https://doi.org/10.1257/aer.98.5.1943
Chang, Q., Zhou, Y., Liu, G., Wang, D., & Zhang, X. (2020). How does government intervention affect the formation of zombie firms? Economic Modelling, 94, 768–779. https://doi.org/10.1016/j.econmod.2020.02.017
China National Intellectual Property Administration. (2009). Patent search and analysis. http://pss-system.cnipa.gov.cn/sipopublicsearch/portal/uiIndex.shtml
Clausen, T. H. (2009). Do subsidies have positive impacts on R&D and innovation activities at the firm level? Structural Change and Economic Dynamics, 20(4), 239–253. https://doi.org/10.1016/j.strueco.2009.09.004
Dai, X., Qiao, X., & Song, L. (2019). Zombie firms in China’s coal mining sector: identification, transition determinants and policy implications. Resources Policy, 62, 664–673. https://doi.org/10.1016/j.resourpol.2018.11.016
Fang, M., & Sun, K. (2019). Can mixed ownership reform of SOEs cure zombie firms? A mixed ownership pecking order logic. Journal of Financial Research, 463(1), 91–110. (In Chinese). http://www.jryj.org.cn/CN/Y2019/V463/I1/91
Fukuda, S., & Nakamura, J. (2011). Why did “zombie” firms recover in Japan? World Economy, 34(7), 1124–1137. https://doi.org/10.1111/j.1467-9701.2011.01368.x
Gao, J., & Li, M. (2018). Dealing strategies of “zombie enterprises”: A review of domestic research. Contemporary Economics, 1, 36–39. (In Chinese).
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw-Hill. https://cbpbu.ac.in/userfiles/file/2020/STUDY_MAT/ECO/1.pdf
Heckman, J. J. (1979). Sample selection bias as a specification error. Econometrica, 47, 153–161. https://doi.org/10.2307/1912352
Huang, S., & Chen, Y. (2017). The distribution features and classified disposition of China’s zombie firms. China Industrial Economics, 3, 24–43. (In Chinese). https://doi.org/10.19581/j.cnki.ciejournal.2017.03.002
Huang, T., & Guo, K. (2019). Research on state-owned zombie firm’s exit mechanism based on evolutionary game theory. Business Management Journal, 5, 5–20. (In Chinese). https://doi.org/10.19616/j.cnki.bmj.2019.05.001
Huergo, E., & Moreno, L. (2017). Subsidies or loans? Evaluating the impact of R&D support programmes. Research Policy, 46(7), 1198–1214. https://doi.org/10.1016/j.respol.2017.05.006
Imai, K. (2016). A panel study of zombie SMEs in Japan: Identification, borrowing and investment behavior. Journal of the Japanese and International Economies, 39, 91–107. https://doi.org/10.1016/j.jjie.2015.12.001
Jaskowski, M. (2015). Should zombie lending always be prevented? International Review of Economics and Finance, 40, 191–203. https://doi.org/10.1016/j.iref.2015.02.023
Jiang, L., & Lu, Y. (2017). Does minimum wage standard inhibit the formation of new zombie firms. China Industrial Economics, 11, 118–136. (In Chinese). https://doi.org/10.19581/j.cnki.ciejournal.2017.11.010
Jiang, L., Lu, Y., & Chen, Y. (2018). Can market mechanism help to cure zombie firm? Evidence from FDI liberation. The Journal of World Economy, 9, 121–145. (In Chinese).
Jiang, H., & Wang, X. (2018). A study on the “zombie firms” problem of listed companies-an empirical analysis of cause and revival based on logit model. East China Economic Management, 32(10), 161–167. (In Chinese). https://doi.org/10.19629/j.cnki.34-1014/f.180606002
Kane, E. (1987). Dangers of capital forbearance: The case of the FSLIC and “zombie” S&Ls. Contemporary Economic Policy, 5(1), 77–83. https://doi.org/10.1111/j.1465-7287.1987.tb00247.x
Kwon, H., Narita, F., & Narita, M. (2015). Resource reallocation and zombie lending in Japan in the 1990s. Review of Economic Dynamics, 18(4), 709–732. https://doi.org/10.1016/j.red.2015.07.001
Li, X., Lu, J., & Jin, X. (2018). Zombie firms and tax distortion. Management World, 34(4), 127–139. (In Chinese). https://doi.org/10.3969/j.issn.1002-5502.2018.04.011
Lin, Y. P. (2011). Zombie lending, financial reporting opacity and contagion. National University of Singapore. https://scholarbank.nus.edu.sg/handle/10635/77714
Liu, G., Zhang, X., Zhang, W., & Wang, D. (2019). The impact of government subsidies on the capacity utilization of zombie firms. Economic Modelling, 83, 51–64. https://doi.org/10.1016/j.econmod.2019.09.034
Luan, Q., Luo, S., Xiong, Q., & Luo, J. (2018). Can government R&D subsidies save zombie firms? An empirical study based on small and medium-sized enterprises in Shanghai. Forum on Science and Technology in China, 10, 39–45. (In Chinese). https://doi.org/10.13580/j.cnki.fstc.2018.10.005
Maksimovic, V., & Phillips, G. (2008). The industry life cycle, acquisitions and investment: Does firm organization matter? Journal of Finance, 63(2), 673–708. https://doi.org/10.1111/j.1540-6261.2008.01328.x
Markides, C. C. (1995). Diversification, restructuring and economic performance. Strategic Management Journal, 16(2), 101–118. https://doi.org/10.1002/smj.4250160203
Meuleman, M., & Maeseneire, W. D. (2012). Do R&D subsidies affect SMEs’ access to external financing? Research Policy, 41(3), 580–591. https://doi.org/10.2139/ssrn.1099346
Nakamura, J., & Fukuda, S. (2013). What happened to “zombie” firms in Japan?: Reexamination for the lost two decades. Global Journal of Economics, 2(2), 1–18. https://doi.org/10.1142/S2251361213500079
Nie, H., Jiang, T., Zhang, Y., & Fang, Y. (2016). Research report on Chinese zombie enterprises: Current situation, reasons and countermeasures. Serial Reports of National Academy of Development and Strategy, RUC, 9. (In Chinese).
Niu, L., & Gao, L. (2018). Government subsidy saves life or continues life: An analysis of causes of zombie firms. Science–Technology and Management, 20(3), 86–96. (In Chinese). https://doi.org/10.16315/j.stm.2018.03.006
Peek, J. (2008). The contribution of bank lending to the long-term stagnation in Japan. University of Kentucky.
Peng, H., Mao, X., & Zhang, Y. (2020). Government innovation subsidy and executives entertainment spending perks – considering the effect of external governance and positive emotion. Management Review, 32(3), 122–135. (In Chinese). https://doi.org/10.14120/j.cnki.cn11-5057/f.2020.03.014
Porter, M. E. (1990). The competitive advantage of nations. Macmillan.
Rao, J., & Wan, L. (2018). Government subsidy, heterogeneity and the formation of zombie firms: Evidence from China’s listed companies. Accounting Research, (3), 3–11. (In Chinese). https://doi.org/10.3969/j.issn.1003-2886.2018.03.001
Shen, G. (2016). Comparative advantages and zombie firms: A study based on new structural economics. Management World, (12), 13–24. (In Chinese). https://doi.org/10.19744/j.cnki.11-1235/f.2016.12.003
Shen, G., & Chen, B. (2017). Can mixed ownership zombie firms and over-capacity in Chinese manufacturing. China Economic Review, 44, 327–342. https://doi.org/10.1016/j.chieco.2017.05.008
Song, J., Su, Z., & Wang, D. (2019). Government subsidies and the formation of zombie firms: based on constraint types of firms. Finance & Trade Economics, 40(4), 5–19. (In Chinese). https://doi.org/10.3969/j.issn.1002-8102.2019.04.002
Tan, Y., Tan, Z., Huang, Y., & Wing, T. W. (2017). The crowding-out effect of zombie firms: Evidence from China’s industrial firms. Economic Research Journal, 5, 175–188. (In Chinese). http://voxchina.org/show-3-128.html
Tan, Y., Huang, Y., & Woo, W. T. (2016). Zombie firms and the crowding-out of private investment in China. Asian Economic Papers, 15(3), 32–55. https://doi.org/10.1162/ASEP_a_00474
Wang, Y., Li, W., & Dai, Y. (2018). How do zombie firms affect innovation? Evidence from China’s industrial firms. Economic Research Journal, 11, 99–114. (In Chinese).
Wang, W., & Liu, X. (2018). Why do zombie firms survive for a long time. China Industrial Economics, 10, 61–79. (In Chinese). https://doi.org/10.19581/j.cnki.ciejournal.2018.10.004
Xu, K., Geng, C., Wei, X., & Jiang, H. (2020). Financing development, financing constraint and R&D investment of strategic emerging industries in China. Journal of Business Economics and Management, 21(4), 1010–1034. https://doi.org/10.3846/jbem.2020.12727
Zhang, A., Wang, S., Liu, B., & Fu, J. (2020a). The double-edged sword effect of diversified operation on pre- and post-loan risk in the government-led Chinese commercial banks. North American Journal of Economics and Finance, 54, 101246. https://doi.org/10.1016/j.najef.2020.101246
Zhang, C., Chen, Y., & Zhou, H. (2020b). Zombie firms and soft budget constraints in the Chinese stock market. Asian Economic Journal, 34(1), 51–77. https://doi.org/10.1111/asej.12194
Zhang, D., Xie, Z., & Wang, J. (2016). China’s zombie companies and their detection – an exploratory research based on listed companies in iron and steel industry. China Industrial Economics, 11, 90–107. (In Chinese). https://doi.org/10.19581/j.cnki.ciejournal.2016.11.008
Zhou, J., Xian, G., & Ming, X. (2018). The recognition and warning of zombie enterprises: Evidence from Chinese listed companies. Journal of Finance and Economics, 44(4), 130–142. (In Chinese). https://doi.org/10.16538/j.cnki.jfe.2018.04.010
Zhu, Z., Zhang, S., & Huang, X. (2018). Can outward direct investment cure zombie firms – a study based on the perspective of firm-level markups. Journal of International Trade, 8, 108–120. (In Chinese). https://doi.org/10.13510/j.cnki.jit.2018.08.009