The Formation Of Zombie Companies And Thier Impact On Industry Profitability

Under the background of the “new normal “ of China’s economy,the growth rate of GDP is declining,and some firms are not operating well,but they can continue to operate because they have received a large amount of “transfusion” from external financing.These zombie firms are not only inefficient and occupy a great number of financial resources,but also cause serious negative externalities to the market,and bring adverse effects to the industry.The harm of zombie firms has aroused widespread concern in the society,and has also become an urgent problem to be solved in China’s supply-side reform.It is necessary to deeply study the forming process of zombie firm and discuss its impact on the industry.To a certain extent,this not only lays a theoretical foundation for reducing the negative externalities of zombie firms,but also provides a more targeted solution for the governance of zombie firms in China’s supply side reform.Therefore,the study of “zombie firms” has both important theoretical value and practical significance.Firstly,this paper reviews the domestic and foreign related literature,summarizes the cause of formation,the harm and governance methods of the existing research on zombie firms,and comprehensive compares advantages and disadvantages of identification standard of zombie firms.On this basis,this paper presents a new identification standard of zombie firm.According to this standard,starting from the micro level,this paper analyzes how the firm evolves to zombie firm under the background of overcapacity by taking Taiyuan Coal Gasification Co.Ltd as a typical case.Also,it investigates the formation mechanism of zombie firm,puts forward the warning mechanism and the governance scheme of zombie firm.Furthermore,from the industrial level,the empirical method is used to explore whether the rising proportion of zombie firms has caused serious negative externalities to the industry’s gross profit margin,resulting in further decline in firms’ profits in the industry,eventually leading to “zombie companies” in the industry increased.The conclusions of this paper are as follows:(1)under the background of excess capacity in the industry,the pressure of competition in the industry increases,and the possibility of firms becoming zombie firms increases;(2)In the formation process of “zombie firms”,the main performance is that firms continue to absorb a large amount of cash flow from the market.The rising debt scale leads to an increase in the assetliability ratio of firms,and the degree of rigidity of firms is rising.The important features in the evolution of zombie firms can be used as an indicator for the warning mechanism of zombie firms.The governance of zombie firms should focus on reducing excess production capacity,reducing financial pressure,enhancing core competitiveness of products and firms’ self-creation.(3)It is shown that the ratio of zombie firms has significant negative externality to industry gross profit margin by empirical analysis.This negative externality has significant impact on industry gross profit margin in low zombie firms ratio industry and high zombie firms ratio,and is more significant to high zombie firms ratio industry.