Government Subsidies and the Formation of Zombie Firms: Based on Constraint Types of Firms
- SONG Jianbo, SU Zihao & WANG Dehong
- SONG Jianbo， SU Zihao (Renmin University of China, 100872)WANG Dehong (Beijing Foreign Studies University, 100089)
?Zombie firms are great challenges in the process of supply-side reform. The relationship between government subsidies and zombie firms is not only an academic debate, but also an urgent practical issue. Based on the main types of constraints they face, firms are classified into those lacking investment opportunities and those constrained by financing. This paper takes the 2007—2016 A-share listed companies as a sample to study the impact of government subsidies on corporate zombification under different constraints. The empirical results show that China's government subsidies are more allocated to firms faced with investment opportunity constraints than firms faced with financial constraints; government subsidies are one of the promoters of zombie firms, but only in investment-constrained firms; the impact of financing subsidies dedicated to expanding corporate financing on the zombification of investment-constrained firms is of more significance than total subsidy amount; subsidies, especially financing subsidies, have not played a role in easing the pressure of zombification for firms with financing constraints. In the robustness test where reverse causality was controlled, and endogeneity, substitute proxy agent, delayed subsidy variable and the zombification of sample firms at loss were discussed, the results above still hold. This paper provides a new perspective to interpret the relationship between government subsidies and zombie firms. It also provides several solutions for handling zombie firms and improving the efficiency of government subsidies.
JEL: L51, M21
- Zombie Firm, Government Subsidy, Financing Subsidy, Investment Opportunity Constraint, Financing Constraint