Zombie Firms in Network: Congestion and Evergreening
| Title: |
Zombie Firms in Network: Congestion and Evergreening |
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Number: |
24/14 |
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Author(s): |
Okan Akarsu, Emrehan Aktuğ, Huzeyfe Torun |
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Language: |
English |
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Date: |
December 2024 |
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Abstract: |
We explore the spillover impact of zombie firms in Türkiye by exploiting a rich administrative dataset that contains firm-level information on balance sheets, inter-firm sales, employment, and firm-bank level credit records. We document four key facts regarding zombie dynamics: (i) Leveraging matched firm-bank level credit registry data, we highlight the presence of an evergreening motive, leading to a misallocation of credit away from productive firms. At the same time, healthy firms in zombie-dense networks face reduced credit access. (ii) Zombie firms, which are on average less productive than non-zombie firms, impede investment and employment opportunities at healthier firms. Non-zombie firms operating in sectors with a high prevalence of zombie firms experience lower sales, assets, and productivity. (iii) Incorporating B2B sales data structured similarly to firm-level input-output data, our study reveals that firms with stronger upstream or downstream zombie connections tend to exhibit reduced sales, investment, and employment compared to firms without any zombie connections. (iv) A higher number of zombie connections leads to significant reductions in markups, value-added, productivity, and EBIT margins due to the cascading effects on production technology, shifting it toward lower value-added. Additionally, a higher share of zombies in the upstream sector reduces input costs for firms due to excess production. | |
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Keywords: |
Zombie firms, Firm dynamics, Evergreening, Credits | |
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JEL Codes: |
E12; E24; E31; E52 | |