Does Zombie Lending Impair Innovation?

42 Pages Posted: 5 Dec 2019 Last revised: 30 Jan 2023

See all articles by Christian Schmidt

Christian Schmidt

University of Mannheim

Yannik Schneider

University of Mannheim

Sascha Steffen

Frankfurt School of Finance & Management

Daniel Streitz

Halle Institute for Economic Research; Copenhagen Business School

Date Written: November 1, 2020

Abstract

This paper documents that “zombie” lending impairs corporate innovation. It depresses patent applications and depletes the existing patent stock, particularly in high technology- and R&D-intensive sectors. Micro-level data from an innovation survey data administered by the European Commission shows that specifically service and process innovation as well as internal R&D spending is severely impacted by zombie lending. Our results highlights the externalities imposed on healthy firms through the misallocation of capital as it prevents both the exit of zombie and entry of healthy firms in affected industries and deflates material costs and total factor productivity dispersion. Importantly, we find depressed innovation activities in industries with neck-and-neck competition consistent with a decline in competition due to zombie lending.

Keywords: Zombie lending, innovation, competition, Europe, economic growth, post-crisis recovery

JEL Classification: E44, E58, G20

Suggested Citation

Schmidt, Christian and Schneider, Yannik and Steffen, Sascha and Streitz, Daniel, Does Zombie Lending Impair Innovation? (November 1, 2020). Available at SSRN: https://ssrn.com/abstract=3489801 or http://dx.doi.org/10.2139/ssrn.3489801

Christian Schmidt

University of Mannheim ( email )

L9, 1-2
Mannheim, 68131
Germany

HOME PAGE: http://https://www.bwl.uni-mannheim.de/en/albrecht/team/doctoral-students/schmidt/

Yannik Schneider

University of Mannheim ( email )

Universität Mannheim L9, 1-2
Chair of Finance
Mannheim, 68161
Germany

Sascha Steffen (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee
32-34
Frankfurt, 60322
Germany
16097326929 (Phone)

HOME PAGE: http://www.sascha-steffen.de

Daniel Streitz

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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