"Zombie Firms" Government Subsidies,Corporate Performance And Risk-taking

With Premier Li Keqiang proposing to deepen the reform of state-owned business and clean up zombie firms in December 2015,"zombie firms",this new concept,have been gradually known.Zombie firms are those firms that cannot recover and are unable to develop.These firms should have withdrawn from the market,but they are still alive in the market,depending on government subsidy and other non-market factors such as bank's loose policy.Zombie firms take up a lot of resources and do not produce the corresponding economic benefits,which distorts the normal order of the market competition.Considering to promote the healthy development of China's economic market and to enhance the quality of economic growth,it is of great significance to explore the existence of zombie firms and find a way to solve this problem.In theory,zombie firms are specific historical products.Not coincidentally,there was a long period of economic stagnation in the 1990 s in Japan.With the rescue of government and bank,a large number of zombie firms existed at that time.The existence of zombie firms exacerbates the excess capacity,resulting in excess capacity cannot be adjusted automatically by market demand.At the same time,forced by the policy pressure,banks have to give loose loan policy to the zombie firms,leading to the increasing bad loan,which drags down the banking industry and induces the systemic risk.In the long run,the existence of zombie firms will eventually lead to serious economic and social problems.Therefore,the study of the factors affecting the zombie firms and the fundamental treatment of zombie firms are particularly important.At present,the study of zombie firms is mainly from the perspective of the external macro factors and the barriers of the delisting of zombie firms.Based on the research background above,and the corresponding literature research,combined with the theory of creative destruction,rent-seeking behavior theory and principal-agent theory,this article builds the relevant hypothesis and makes the empirical test.The test in this article is divided into three steps: firstly,according to non-zombie firms,verify the relationship between the zombie firms and government subsidies and the relationship between zombie firms and risk-taking;secondly,based on the results of the test in step one,verify the impact of the zombie firms' risk-taking on their corporate performance;Finally,based on the results of the test in step two,verify the impact of the zombie firm' government subsidies on their risk-taking behaviors.Based on the tests above,this article tries to clarify the logical relationship between the zombie firms,the government subsidies,the risk-taking behaviors and the corporate performance,so as to make suggestions on the governance of zombie firms.In view of the phenomena and theoretical analysis above,this article selects the relevant companies of A-shares of Shanghai and Shenzhen Stock Exchanges from 2006 to 2012 as samples.The related industries are agriculture,forestry,animal husbandry and fishery,mining,manufacturing,electricity,thermal gas and aquaculture and supply,construction,wholesale and retail,real estate,water conservancy,environment and public facilities management and so on.From the factors above,this article defines and analyzes the main related variables,and takes the empirical analysis.The result shows that,with reference to non-zombie firms,zombie firms have higher government subsidies and higher risk-taking level.Further research finds that zombie firms' risk-taking is positively related to their corporate performance while zombie firms' government subsidies play a restrained role to their risk-taking behaviors.The results show that the zombie firms' management is trying to improve the level of risk-taking to restore business performance,which means that zombie enterprises still want to be able to restore health.However,the government subsidies strengthen the zombie firms' tolerance,which makes the zombie firms' management lazy,thus inhibiting the level of risk-taking.With the results of empirical analysis,this paper holds that the governance of zombie firms should proceed from the following points.First of all,governments and companies should actively promote innovation and transformation,to increase the level of risk-taking and give the zombie firms the opportunities to restore their corporate performance.Secondly,the government should give subsidies to enterprises scientifically.With strict conditions to develop relief measures,only the firms who have large potential to develop could gain the subsidies.At the same time,the government should appropriately reduce the interference to the enterprises,let the market regulate and control the companies.With the healthy market competition mechanism,a batch of old enterprises with excess capacity should be eliminated automatically.Finally,the ‘creative destruction' make senses to the market to promote the economic development.The main contributions of this paper are as follows,(1)From the perspective of zombie firms,the empirical analysis of zombie firms' government subsidies,risk-taking behaviors and corporate performance has made up for the gap of empirical research on zombie enterprises in China and enrich the theory cognitive of zombie firms;(2)From the perspective of risk – taking behavior,the new combination of zombie firms,government subsidies,corporate performance and risk-taking behavior enriches the research of risk-taking behaviors in China;(3)this article can provide a certain direction of governance of zombie firms.