Do government subsidies lead to TFP losses? A perspective on the formation of zombie firms.

ABSTRACT: This study examines how government subsidies affect aggregate total factor productivity (TFP) through the formation of zombie firms in China. Using panel data of A-share listed firms from 2007 to 2022 and industry-province-year aggregates, we analyze both firm-level dynamics and aggregate productivity outcomes. The results show that subsidies reduce the exit probability of low-productivity firms and significantly increase the likelihood of zombie firm formation. Although the prevalence of zombie firms fluctuates over time, it remains a persistent challenge. At the aggregate level, subsidies exert a negative impact on TFP, with zombie firm prevalence serving as a key mediating channel. The mediating effect is particularly strong in industries with a higher share of state-owned enterprises (

SUBMITTER: Chen R 

PROVIDER: S-EPMC12714253 | biostudies-literature | 2025

REPOSITORIES: biostudies-literature