The life and death of zombies – evidence from government subsidies to firms

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Title: The life and death of zombies – evidence from government subsidies to firms
ISBN: 978-952-323-328-7
Author: Nurmi, Satu ; Vanhala, Juuso ; Virén, Matti
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2020
Series number: 8/2020
Year of publication: 2020
Publication date: 14.5.2020
Pages: 35
Subject (yso): yritykset; tuottavuus; valtiontuki; tukipalkkiot
Keywords: Suomi
JEL: D22; D24; G33; H25; L16; L25; O25
Other keywords: zombies; misallocation; firm exit; firm growth; subsidies; productivity
Abstract: We analyze the demographics of zombie firms and durations of zombie spells as well as their determinants, including an application on public subsidies using firm level population panel data from Finland. Firm-level analysis of firm demographics reveals that zombie-firms, as commonly defined in the literature, are often not truly distressed firms but rather companies with temporarily low revenues relative to interest payments. More importantly, we find that roughly a third of these firms are in fact growing companies and two thirds recover from the zombie status to become healthy firms. We also show that the increase of zombie firms over the past 15 years has mainly been driven by cyclical factors, as opposed to a secular trend. In our policy application on government subsidies to firms, estimation results strongly suggest that subsidy-receiving firms are less likely to die, regardless of the type of subsidy. However, with regard to recovery there is heterogeneity in the effects depending on the type of firm and the type of subsidy received. Thus, we do not find a robust positive association of subsidies with zombie recovery.
Rights: https://helda.helsinki.fi/bof/copyright


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