Zombies at Large? Corporate Debt Overhang and the Macroeconomy

46 Pages Posted: 8 Dec 2020

See all articles by Òscar Jordà

Òscar Jordà

Federal Reserve Banks - Federal Reserve Bank of San Francisco

Martin Gunter Michail Kornejew

World Bank

Moritz Schularick

University of Bonn - Department of Economics; Centre for Economic Policy Research (CEPR)

Alan M. Taylor

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2020

Abstract

With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the near-universe of modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when inefficient debt restructuring and liquidation impede the resolution of corporate financial distress and make it more likely that corporate zombies creep along.

Keywords: corporate debt, business cycles, local projections

JEL Classification: E44, G32, G33, N20

Suggested Citation

Jordà, Òscar and Kornejew, Martin Gunter Michail and Schularick, Moritz and Taylor, Alan M., Zombies at Large? Corporate Debt Overhang and the Macroeconomy (December 2020). FRB of New York Staff Report No. 951, Available at SSRN: https://ssrn.com/abstract=3742973 or http://dx.doi.org/10.2139/ssrn.3742973

Òscar Jordà

Federal Reserve Banks - Federal Reserve Bank of San Francisco ( email )

Martin Gunter Michail Kornejew

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Moritz Schularick (Contact Author)

University of Bonn - Department of Economics ( email )

Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Alan M. Taylor

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-1572 (Phone)
530-752-9382 (Fax)

HOME PAGE: http://www.econ.ucdavis.edu/faculty/amtaylor/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

HOME PAGE: http://nber.org

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://cepr.org

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