Zombie Firms In China: Identification, Causes Of Formation And Impacts

The existence of zombie firms have seriously constrained the operation of market mechanism,led to low efficiency of resource allocation and hindered economy restructuring and local development.To handle the issue of zombie firms,analyzing and solving a serious of significant questions are the foremost.Among them,identifying zombie firms is the fundamental work,which helps to understand their existence situation in China.Based on the identification of zombie firms,analyzing the reasons of their formation is meaningful for finding crux.Besides,the calculation and comparison of resource misallocation between zombie and non-zombie firms may directly suggest the main part of zombie firms‘ hazards,which helps to know more about the harm depth and the disposition urgency of zombie firms in China.Based on the identification methods in existing literature,the paper promotes the overall and categorizing identification strategy.Then,the paper applies the strategies to the Annual Survey of Industrial Firms in China during 1998-2007 and listed companies during 1991-2015.After the identification of zombie firms,the paper uses the Logit model to analyze the reasons of zombie firms‘ formation.It also calculates and compares the resource costs and misallocation between zombie and non-zombie firms.At last,the paper proposes some suggestion in terms of identifying and dealing with zombie firms,based on the features,reasons and harms of their existence.The identification results show that in China and by number,zombie firms account for 10.09%-19.69% in industrial firms while 12.09%-25.97% in listed companies.The regression results of Logit model with data of manufacturing firms between 2001 and 2006 suggest that total factor productivity(TFP)has significantly negative effect on the probability of becoming zombie firms,while export dependence,state-owned attributes,duration time and firm size have significantly positive one.Lastly,by calculating the cost and misallocation of labor and capital resource among zombie and non-zombie firms,the paper finds that compared with non-zombie firms,zombie ones pay less for capital and labor resource,and the misallocation extent is higher among zombie firms.From2001 to 2006,the cost gap and misallocation difference has been narrowed,which means the resource allocation efficiency has been increased.Assuming that zombie and non-zombie firms had the same resource costs,which are those of the industry-level average of non-zombie firms,every year between 2001 and 2006,TFP of the whole manufacturing industry could increase around 56% based on the real TFP each year.