Zombie firms and corporate financialization: evidence from China

Zombie firms are an important constraint to promote high-quality economic development. Based on the data of China’s A-share non-financial listed firms from 2008 to 2018, this paper discusses the impact of zombie firms on the level of corporate financialization and its mechanism of action by using the fixed effects model and mediation effect model. Our empirical results show that zombie firms exacerbate non-zombie firms’ corporate financialization, as the higher the proportion of zombie firms in the industry, the higher financialization of non-zombie firms, and the conclusions remain robust after considering endogeneity issues. Further analysis reveals that the financing constraints acts as a fully mediating role in zombie firms and non-zombie firms’ corporate financialization, which shows that zombie firms will increase the financing constraints of non-zombie firms and then may cause non-zombie firms to allocate financial assets. We also find that the impact of zombie firms on the financialization of non-zombie firms is more pronounced in the sample of non-state enterprises, low levels of regional financial development, and before the supply-side structural reforms proposed in 2015. The results of this study provide important theoretical guidance for accelerating the disposal of zombie firms.