WHAT HAPPENED TO "ZOMBIE" FIRMS IN JAPAN?: REEXAMINATION FOR THE LOST TWO DECADES

Abstract

The Japanese economy experienced prolonged recessions during the 1990s and the 2000s. Until the early 2000s, evergreen lending to firms had distorted market discipline in terms of stabilizing the Japanese economy. Even though a majority of the zombie firms eventually recovered during the first half of the 2000s, deflation in Japan still persisted throughout the 2000s. The purpose of this paper is to explore how zombie firms recovered in Japan while the deflation persisted. We investigate how corporate restructuring was effective in reviving zombie firms in the 1990s and the 2000s. Our multinomial logistic regressions suggest that some of cost cutting efforts such as reducing the number of employees and selling the fixed assets were beneficial in facilitating the recovery of zombie firms. However, industry-level and firm-level environment, especially labor productivity, had little to do with the recovery. The results may suggest that corporate restructuring without innovations were responsible for...