Political Connection and the Walking Dead: Evidence from China's Privately Owned Firms
34 Pages Posted: 3 Jan 2018 Last revised: 30 Mar 2019
Date Written: August 1, 2018
Using a sample of privately owned listed firms in China, we document that firms’ political connections have a positive effect on their likelihood of becoming insolvent and inefficient (which we call zombies or zombie firms). The results are more pronounced for firms that are located in regions with extensive government intervention or weak institutional environment. In addition, for firms without political connections, the presence of zombie firms has larger negative spillover effects on the investment and productivity of healthy firms compared with zombie firms in the same industry. Curiously, such differential negative spillover effects are not observed for firms with political connections.
Keywords: zombie firm; political connection; resource misallocation
JEL Classification: G21; G34; L33; P34
Suggested Citation: Suggested Citation