The Bank of England, Wadham College (University of Oxford), and the Center for Positive/Empirical Analysis of Political Economy, Waseda University jointly hosted the workshop ‘Financial Frictions, Zombie Firms and the Macroeconomy’ on Monday, March 13, at Wadham College, University of Oxford. The workshop focused on firm productivity and credit market frictions and presented ongoing projects and recent research papers related to firm dynamics, bank lending, monetary policy and macroeconomic conditions.
After keynote speeches
The following are summaries of the presentations:
08:30 – 09:20
Zombie Lending to U.S. Firms (Ander Perez-Orive, Fed Board)
Argued that the US exhibited few zombie firms between 2014-2019. Their explanation was that even weakly capitalised banks in the US tend to cut lending exposure to unproductive firms causing them to exit the market at high rates. Their explanation is efficient bankruptcy procedure cause firms to exit swiftly when they turn unproductive in the US. They exploit the 2014-15 oil price shocks as an experiment to identify levered firms that transition in response to the energy cost shock into zombie status and banks that suffer loan losses on their balance sheets.
Discussant: Aakriti Mathur
09:20 – 10:10
Evergreening Pascal Paul (San Francisco Fed)
In this paper, the authors present a theoretical model arguing that high amounts of debt mean banks have an incentive to evergreen loans of otherwise profitable, but over-indebted companies.
Discussant: Hanbeak Lee
10:25 – 11:15
How Does Competition Affect Zombie Firms? (Angela de Martis (OECD))
The paper uses instrumentalised China trade shocks to argue that industries with higher import penetration will see a decline in the number of zombie firms operating in these industries. The interpretation of this result is that trade leads to the closure of low productivity firms through competition.
Discussant: Gabor Pinter
11:15 – 12:05
Credit Market Tightness and the Zombie Firm Share (Philip Schnattinger, research economist, Bank of England, joint with Masashige Hamano, Professor of Waseda University, and Francesco Zanetti, Department of Economics (ox.ac.uk))
They present a theoretical model with empirical evidence arguing that the direction to which the zombie firm share responds to increased loan offerings depends on the structure of the economy. A higher level of credit market tightness meaning loan offers over firms searching for capital increases banks’ incentives to finance zombie firms, but with higher tightness credit market frictions for firms become less meaning fewer equity holders are willing to operate zombie firms. As a result, the response of the zombie share to credit expansions is dependent on the state of credit market tightness.
Discussant: Martina Fazio
13:30 – 14:20
Firm Heterogeneity, Captical Misallocation and Optimal Monetary Policy (Dominik Thaler)
Discussant: Francesco Manaresi
14:20 – 15:10
Corporate Debt Maturity Matters For Monetary Policy (Timo Reinelt)
Discussant: Toshihiro Okubo
15:25 – 16:15
Pandemic Lending: Micro and Macro Effects of Model-Based Regulation (Franco Fiordelisi)
Discussant: Xuan Wang
Wadham College
