Template-Type: ReDIF-Paper 1.0
Author-Name:Nirupama Kulkarni
Author-Name-First: Nirupama
Author-Name-Last: Kulkarni
Author-Email: nirupama.kulkarni@gmail.com
Author-Workplace-Name:` CAFRAL
Author-Name:S.K. Ritadhi
Author-Name-First: S.K.
Author-Name-Last: Ritadhi
Author-Email: sk.ritadhi@ashoka.edu.in
Author-Workplace-Name:` Department of Economics, Ashoka University
Author-Name:Sayan Mukherjee
Author-Name-First: Sayan
Author-Name-Last: Mukherjee
Author-Email: sayanmukherjee012@gmail.com
Author-Workplace-Name:` Indian Statistical Institute, Kolkata
Title: Unearthing Zombies
Abstract: Since ineffective debt resolution perpetuates zombie lending, bankruptcy reform has emerged as a solution. We show, however, that lender-based frictions can limit reform impact. Exploiting a unique empirical setting and novel supervisory data from India, we document that a new bankruptcy law had muted effects on lenders recognizing zombie borrowers as non-performing. A subsequent unexpected regulation, targeting perverse lender incentives to continue concealing zombies, increased zombie recognition particularly for undercapitalized and government-owned banks, highlighting the role of bank capital and political frictions in sustaining zombie lending. Resolving zombie loans allowed lenders to reallocate credit to healthier borrowers who increased investment.
length: 63
Creation-Date: 20210505
Revision-Date: 
Publication-Status: 
File-URL: https://dp.ashoka.edu.in/ash/wpaper/paper59_0.pdf
File-Format: Application/pdf 
Number: 59
Keywords: Banking Regulation
Keywords: Bankruptcy
Keywords: Creative Destruction
Keywords: India
Keywords: Zombie
Handle: RePEc:ash:wpaper:59