Macroeconomics

Zombie

Financial system

Credit crunch

Microeconomics

Computer security

Economics

Computer science

Business

Recession

Monetary economics

Externality

Financial crisis

Bank credit

The Economic Journal

Using data on bank-firm relationships in Italy during the Eurozone financial crisis, we show that: (i) compared to healthy banks, under-capitalised banks cut credit to healthy but not to zombie firms and are more likely to prolong a credit relationship with a zombie; (ii) in area sectors with more low-capital banks, zombies are more likely to survive; (iii) bank under-capitalisation does not hurt the growth rate of healthy firms. We provide evidence that extending credit to the weakest firms during the recession mitigated the disruption of supply chains and adverse local demand externalities.

Credit Misallocation During the European Financial Crisis