Abstract
Reducing firms' costs of debt financing is an important means of promoting the high-quality development of China's economy. Using the firm-level data of non-financial A-share listed firms from 2008 to 2018, we empirically test the impact of zombie firms on the debt financing costs of normal firms (i.e., non-zombie firms) through the fixed effect model. The empirical results show that zombie firms significantly increase the debt financing costs of normal firms. The robustness tests and endogeneity tests confirm this finding. Further analysis reveals significant differences in the effects of zombie firms on the debt financing costs of normal firms subject to different levels of external financing dependence, different forms of ownership, and different firm scales. The negative effect of zombie firms on the debt financing costs of normal firms is more significant in industries with high external financing dependence, non-state-owned firms, and middle-small firms. The proper disposal of zombie firms reduces the debt financing costs of normal firms to improve the allocation efficiency of resources across an entire industry and to promote the optimization and upgrading of the industrial structure and the sustainable development of the economy.
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