Sluggish Reallocation of Productive Resources After the Recovery of Zombie Firms

Abstract

This short chapter discusses a possible cause of the sluggish reallocation of productive resources after the recovery of alleged zombie firms in the early 2000s using a “within-between” decomposition analysis of aggregated ROA. The decomposition result clearly shows that reallocation effects systematically take a positive value every year until 2008, suggesting that the reallocation of assets had been proceeding in the right direction in terms of efficiency. However, in spite of the importance of the reallocation effect in the long run, it was not accelerated after the recovery of alleged zombie firms. The time series variation in the number of employees and amount of tangible fixed assets reveals that the employment and investment behavior of healthy firms was too inactive to change the resource allocation dramatically in the second half of the 2000s. The substantial increase in zero-leveraged firms in the 2000s suggests that severe restructuring by alleged zombie firms in the process of recovery incentivized healthy firms to entrench themselves in an excessively strong financial ground.

Any opinions, findings, or conclusions expressed in this chapter are those of the author and do not reflect the views of the Development Bank of Japan.