Using a panel dataset of firms for the period 1999-2008, we estimated the prevalence of zombies among Japanese Small-and Medium-sized enterprises (SMEs) and their borrowing and investment behaviors. We observe that 4-14% of SMEs were zombie firms during the period 1999-2008.Analysis of borrowing behavior indicates that zombie firms could not reduce their loans. Reductions in the land values of SMEs did not lead to a decrease in the borrowing of zombie firms due to ever-greening. We also observe that the profitability of investment, measured by marginal q, did not increase investment among zombie firms because evergreen loans increased investment in less productive and profitable projects.
JEL classification G21 E22 and E44 We thank Kazuo Ogawa and the participants of the poster session at the 2012 Spring Meeting of the Japanese Economic Association for their helpful comments and suggestions. We are responsible for any remaining errors. ✝
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