Zombies at Large? Corporate Debt Overhang and the Macroeconomy

Authors

Martin Kornejew

Moritz Schularick

Alan M. Taylor

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2020-36 | December 3, 2020

With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the near universe modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when inefficient debt restructuring and liquidation impede the resolution of corporate financial distress and make it more likely that corporate zombies creep along.

Article Citation

Taylor, Alan M., Martin Kornejew, Moritz Schularick, and Oscar Jorda. 2020. “Zombies at Large? Corporate Debt Overhang and the Macroeconomy,” Federal Reserve Bank of San Francisco Working Paper 2020-36. Available at https://doi.org/10.24148/wp2020-36

About the Author
Òscar Jordà
Òscar Jordà is a senior policy advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Òscar Jordà