Can pay‐performance sensitivity cure zombie firms? Evidence from China

Wu, Yumeng; Haiying, Pan

doi:10.1002/mde.3439

Cited by 8 publications

(6 citation statements)

References 32 publications

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“…It has also been observed that the strong competition among banks can reduce zombie formation because banks will have to focus more on due diligence and find highly credit-worthy borrowers (Zhang & Huang, 2022). To reduce agent-principal misalignment, Wu and Pan (2022) analyzed Pay–Performance Sensitivity (PPS), a policy that links managers’ incentives to firm performance. This encourages managers to improve their firm’s competitiveness and make better financing and investment decisions.…”

Section: Findings From Literaturementioning

confidence: 99%

Surviving beyond expiry: a systematic literature review of zombie firms

Upadhyay,

Baag

2023

CAFR

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PurposeThis paper reviews the literature on zombie firms to provide a holistic view by delineating their formation, impact, widespread nature, prevention and policy implications.Design/methodology/approachThis paper uses a systematic literature review methodology, in which 76 papers published in journals ranked on the Australian Business Deans Council (ABDC) 2022 list were reviewed. The study period was from 2000 to 2022.FindingsAmong the main findings, the widespread problems of zombie firms were evident. The authors found that consistent support, either in the form of government grants or a weak financial framework, was responsible for their formation. The suboptimal performance of factors of production, depressed job creation, low innovation and overall negative impact on economic activity are the consequences of zombification. This can be controlled by ensuring better bankruptcy codes, focused on government assistance, technology use and better due diligence by banks.Practical implicationsThis review serves as a reference point for future researchers as a cohesive and holistic study presenting a full picture of the problem, so that the proposed solutions are robust and tenable.Originality/valueThis review is among the initial attempts to comprehensively study published work on zombie firms in terms of analyzing their region-specific nature, with an emphasis on definition, causes, impact and prevention.

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Section: Findings From Literaturementioning

confidence: 99%

Surviving beyond expiry: a systematic literature review of zombie firms

Upadhyay,

Baag

2023

CAFR

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“…As usual, zombie banking is one of the pillars of corporate zombification, although direct state involvement seems to be a significant driver of zombification through subsidies, guarantees, and government favor (Chang et al, 2021;Jiang et al, 2017;Wu & Pan, 2022).…”

Section: Zombie Firms: International Perspectivesmentioning

confidence: 99%

“…Indeed, over 70% of SOEs would be zombies in China, while above 60% concentrate on the manufacturing sector (Wang & Zhu, 2021). As usual, zombie banking is one of the pillars of corporate zombification, although direct state involvement seems to be a significant driver of zombification through subsidies, guarantees, and government favor (Chang et al, 2021; Jiang et al, 2017; Wu & Pan, 2022).…”

Section: Zombification and Malinvestmentmentioning

confidence: 99%

The distorted entrepreneurial decision‐making of zombie firms

Gabriel,

Giménez Roche

2023

Manage Decis Econ

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Quantitative easing policies have resulted in a significant increase in credit, posing a threat to developed countries' economic stability. This research aims to analyze the impact of distorted interest rates and readily available capital on creating “zombie firms” in the context of Mises–Hayek's malinvestment theory. The study highlights the importance of understanding these factors to prevent firm failure and recommends limited intervention in interest rates and capital availability before crises. Additionally, the study advocates for implementing flexible insolvency regimes for insolvent firms post‐crisis to mitigate the risk of corporate zombification.

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“…The external environment level includes the development of FinTech (Jin et al, 2022), investor attention (Lin and Zhang, 2023), and fierce bank competition (Zhang and Huang, 2022), and so forth. The enterprise's efforts include downsizing and restructuring (Carreira et al, 2021), increasing the proportion of female executives (Fang et al, 2020), and improving pay‐performance sensitivity (Wu and Pan, 2021), and so forth.…”

Section: Introductionmentioning

confidence: 99%

Can common institutional ownership inhibit the formation of zombie firms? Evidence from China

Ding

2024

Asian-Pac Economic Lit

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The survival of zombie firms severely crowds out healthy corporate investment and employment growth, eventually undermining economic growth potential. Hence, how to properly address the problem of corporate zombification is an essential part of achieving high‐quality economic development in China. In recent years, the phenomenon of common institutional ownership has become increasingly widespread in the capital markets and has a significant impact on the strategic decisions of companies. There are currently two views on the corporate governance role of common institutional ownership: the synergistic governance effect and the collusive fraud effect. Using data from Chinese‐listed firms from 2009 to 2021, this paper finds that common institutional ownership can significantly inhibit the formation of zombie firms. The higher the degree of their linkage and the greater the shareholding, the more pronounced the synergistic effect. The findings remained valid after considering the endogeneity issue and conducting robustness tests. Furthermore, the mechanism test suggests that common institutional ownership inhibits the formation of zombie firms by improving internal control quality and reducing agency costs. This paper contributes to the study of how to inhibit the formation of zombie firms by identifying common institutional ownership from the perspective of external governance mechanisms. In addition, this paper enriches the research on the economic consequences of common institutional ownership. Finally, various practical implications for policymakers may be realised, which may help curb the trend of corporate zombification through equity‐based instruments.

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Can pay‐performance sensitivity cure zombie firms? Evidence from China

Cited by 8 publications

References 32 publications

Surviving beyond expiry: a systematic literature review of zombie firms

Surviving beyond expiry: a systematic literature review of zombie firms

The distorted entrepreneurial decision‐making of zombie firms

Can common institutional ownership inhibit the formation of zombie firms? Evidence from China

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