Does "Four Trillion Yuan Stimulus Package" Increase The Number Of Zombie Firms?

The Chinese government invested four trillion Yuan answering the 2008 financial crisis,which quickly pushed the Chinese economy out of the bottom.However,after 2010,the return on infrastructure investment has declined.Overcapacity and profit reduction happened in supported industries.More and more enterprises were suffering from operational difficulties and even losses.This paper analyzes the impact of policy interventions on enterprise investment behavior by examining the impact of Four Trillion Yuan Stimulus Package on the number of zombie firms and exploring its internal mechanism.We aim to help clarify the direction of disposing zombie firms and resolve overcapacity.Besides,it has reference value for avoiding policy risks and improving policy regulation mechanism.Using Chinese A-share listed companies dataset covering the period between 2004 and 2013,this paper identifies zombie firms by"FN-CHK”method and make descriptive statistics of its distribution features.The main conclusions are as follows:(1)The proportion of zombie firms in A-share listed companies is about 5.82%.The average proportion of zombie firms in various industries is about 7%.(2)Zombie firms are mostly distributed in traditional industries with excessive overcapacity,labor-intensive industries,real estate industries and transportation industries.(3)The number and share of zombie firms in state-owned enterprises are both higher than those of non-state-owned enterprises.Although eastern region has a large number of zombie firms due to the large base,the proportion is higher in the central and western regions;(4)Experiencing a period of first reduction and then increase after 2009,the number of zombie firms reached a minimum in 2011;(5)Compared with normal firms,zombie firms are characterized by high debt,low investment efficiency and poor growth.Empirical analysis at the industry level based on difference-in-differences method shows that the proportion of zombie firms are affected by industry characteristics such as concentration degree,financing capacity and return on assets.Four Trillion Yuan Stimulus Package has a positive impact on the proportion of zombie firms.But this increment is not significant in the first three years of policy implementation.It began to appear in the fourth year(2012)of implementation and gradually increased over time,which means that the increase of zombie firms is a long-term cumulative result.In addition,four different identification methods are used to re-identify zombie firms for robustness testing,and the regression results are significant.Furthermore,findings from enterprise-level data are as follows:(1)Four Trillion Yuan Stimulus Package causes the expansion of corporate investment scale,growth of financial leverage,and decline in investment efficiency,capacity utilization and profit margin.This policy makes certain companies a zombie company by acting on these intermediate variables;(2)It is a long-term and dynamic process for enterprises to go from overcapacity caused by over-investment to profitability deterioration and then to zombie firms.(3)Compared with private enterprises and foreign-funded enterprises,state-owned enterprises are more vulnerable to policy intervention;zombie firms in the western region are more affected by policy intervention than in the eastern and central regions;(4)Four Trillion Yuan Stimulus Package has increased the number of zombie firms in general,but some of original zombie firms were able to revive in the short term owing to the increase of government financial subsidies and bank credit funds.Expansionary policies against the economic cycle can promote economic development in a historical period of dealing with financial crisis,but it may also have adverse effects in another period of time.