“A continent littered with zombie firms and broke households will never prosper.” (“Europe’s other debt crisis,” The Economist, 2013)
In their new paper, “Does Zombie Lending Impair Innovation?”, Christian Schmidt, Yannik M. Schneider, Jana-Lynn Schuster, Sascha Steffen, and Daniel Streitz explore how “zombie lending”—the practice of banks continuing to fund non-viable firms—stifles competition and innovation, particularly in high-tech and R&D-intensive sectors. Using extensive data from Spain post-financial crisis, the authors reveal that industries with high levels of zombie lending experience a significant decline in patent applications and innovation activities, leading to long-term productivity and growth challenges. This study highlights the critical implications of zombie lending for economic recovery and technological progress, urging policymakers to address credit misallocation to foster a healthier, more competitive market environment.
Keywords: Zombie lending, innovation, competition, Europe, economic growth, post-crisis recovery
Contact: Prof. Dr. Sascha Steffen
