Philip Schnattinger (@pschnattinger.bsky.social)

Financial intermediation and zombie firms: Theory and evidence Credit market conditions have been identified as a key driver of the prevalence of zombie firms. This column studies the relationship between credit conditions and zombie firms using a new theoretical framework. It highlights that credit market tightness creates opposing incentives for banks and firms. Increases in credit market tightness first lead to a higher share of zombie firms, but the share begins to decline at higher levels of tightness. The theoretical predictions are supported by industry-level data from Japan, which furthermore shows that the ability of capital injections to reduce zombie lending increases with credit market tightness. https://cepr.org/voxeu/columns/financial-intermediation-and-zombie-firms-theory-and-evidence