Zombies at Large? Corporate Debt Overhang and the Macroeconomy

Òscar Jordà · Martin Kornejew · Moritz HP. Schularick · Alan M. Taylor

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Global Financial Crisis and Policies Corporate Finance and Governance Economic Theory and Policy

Abstract

Abstract Debt overhang is associated with higher financial fragility and slower recovery from recession. However, while household credit booms have been extensively documented to have this property, we find that corporate debt does not fit the same pattern. Newly collected data on nonfinancial business liabilities for 18 advanced economies over the past 150 years shows that, in the aggregate, greater frictions in corporate debt resolution make for slower recoveries, with weak investment and more persistent “zombie firms” and that this is an important factor in explaining the difference in outcomes relative to household credit booms.

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1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1960The Problem of Social Cost 1998Law and Finance 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1977Determinants of corporate borrowing 1997Legal Determinants of External Finance 2008The cost of capital, corporation finance and the theory of investment 1998Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data

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