The Reason For The Existence Of Zombie Firms In The Perspective Of Soft Budget Constraint

Overcapacity has become one of the most important macroeconomic risks in China,which has become a common consensus.The supply side reform has pointed ways to resolve overcapacity,the implementation of industrial policy,industry development and the production and management to the micro-enterprises under the background of the three overlapping in the new period,which has become an important strategy to the adjustment and upgrading of economic structure of China.Specifically,the supply side reform,starting from the end of production and supply side,enhances competitiveness and promote economic development through the liberation of productivity,whose core is to improve TFP(total factor productivity),and its policies include decentralization,financial reform,the reform of state-owned enterprises,improvement of the ability of innovation etc.Cleaning up zombie companies is an important part of the supply side reform.At the same time,debt risk has become a serious threat to China's market economy,and the existence of a large number of zombie companies will undoubtedly increase the bank's bad debts,contributing to the high leverage risk.Therefore,the disposal of zombie enterprise is imminent.Through the study of China COSCO Holdings Ltd,the famous the "king of loss" in A shares market by analyzing the last three years financial report,this paper analyzes the reasons for the existence of zombie firms from the level of company finance.Taking advantage of the theory-driven case study method and being guided by the "soft budget constraint" theory,this paper analyses the causes state-owned zombie firms behind the soft budget constraint under the specific institutional environment of China,and provides ways to the disposal of zombie firms by hardening budget constraints.This paper proposes three measures to the solution of zombie firms,including(a)enhancing the reform of commercial banks by restricting financial supervision and credit approval,hardening budget constraints of enterprises,and strengthening the management and disposal of the debts of the zombie enterprises;(b)strengthening the supervision of the financial sector and guiding the market to establish a fair competitive system,and establishing a sound exit mechanism to guide a large number of zombie companies to withdraw from the market properly;(c)the country should improve bankruptcy mechanism of enterprises,to provide legal guidance for zombie companies;(d)to strengthen the reform of state-owned enterprises,the disposal of zombie companies is closely related to reform of state-owned enterprises,state-owned enterprises should participate in the normal market competition environment,so that we can harden the budget constraint for zoobie firms;(e)from the perspective of the zombie enterprises,they should serach for the direction of enterprise development actively,and strive to improve the productivity,the only way to stand up from a predicament.