The macroeconomic implications of zombie firms returned to the forefront of the public debate during the Covid-19 pandemic, as concerns emerged that unprecedented public support to firms may have helped zombie firms stay afloat, thus delaying a necessary creative destruction process. The existence of zombie firms is not a new phenomenon, dating back to Japans lost decade starting in the 1980s, a period when lending to unproductive and unviable firms played a key role in amplifying the economic stagnation by misallocating capital away from the most productive firms (Peek and Rosengren 2005, Caballero et al. 2008, Giannetti and Simonov 2013). Similar findings have been found during the 2010s European sovereign debt crisis, when weak banks …
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