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; Centre for Economic Policy Research (CEPR)

Daniel Streitz

Halle Institute for Economic Research

Date Written: December 05, 2019

Abstract

This paper documents that reduced product market competition due to “zombie lending” reduces firms’ incentives to innovate. It depresses patent applications and depletes the existing patent stock, particularly in high technology- and R&D-intensive sectors. We find consistent results using micro-level data from an innovation survey that includes information on unpatented innovation activities. Our results are robust to an instrumental variable approach that addresses concerns that banks are weak because they are exposed to low-performing firms. The eects are concentrated in industries in which firms with a similar technology level compete, i.e., sectors in which reduced competition is predicted to adversely aect firms’ incentives to innovate. Our results highlight potential long-run externalities on productivity and innovation dynamics resulting from 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? (December 05, 2019). 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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Daniel Streitz

Halle Institute for Economic Research ( email )

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
829
Abstract Views
4,821
Rank
64,340
PlumX Metrics