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Corporate Finance Facility and Resource Allocation: Research Trends and Developments during the Spread of COVID-19

January 20, 2023
Kotone Yamada*1
Yukio Minoura*2
Jouchi Nakajima*3
Tomoyuki Yagi*4


Since the outbreak of COVID-19, governments and central banks in major countries have implemented large-scale corporate finance facilities. While a series of policy actions seemingly have served well to rein in bankruptcies in the short run, more than a few have remarked that the facility measures could hamper business dynamics and distort resource allocation in the medium to long run.Based on these discussions, this paper provides a literature survey of existing studies on the effects of corporate facility measures of banks and governments on resource allocation in the economy. It mainly focuses on Japan after the collapse of its bubble economy, European countries after the global financial crisis and the sovereign debt crises, China under debt expansion, and developed countries during the spread of COVID-19. We also identify so-called "zombie firms," which survive with banks' and governments' support despite performing poorly without the prospect of recovery, using firms' financial data. We set the criteria of the zombie firms by arranging methodologies proposed by the existing studies. The analysis shows that the number of zombie firms surged after the collapse of the bubble economy in the early 1990s in Japan. It decreased in the early 2000s and remained relatively lower in recent years for both large and small-and-medium enterprises. At least based on the currently available data in fiscal 2020 after the spread of COVID-19, we do not detect a problematic growth in the number of zombie firms as in the 1990s. Still, we need to be cautious about the development of zombie firms because we have data constraints on the recent data.

JEL Classification
D22, D24, D30

Business dynamics, Resource allocation, Zombie firms, COVID-19

An earlier version of this paper was presented in the introductory session of the 9th joint conference of the Center for Advanced Research in Finance (CARF) at the University of Tokyo and the Research and Statistics Department, Bank of Japan, titled "Japan's Economy during and after the COVID-19 Era" (held on November 29, 2021). The authors thank Kosuke Aoki, Seisaku Kameda, Keiichiro Kobayashi, Ryo Jinnai, Shinichiro Nagae, Teppei Nagano, Koji Nakamura, and staff members of the Bank of Japan for their valuable comments. The authors are also grateful to Haruhiko Inatsugu, Masato Takahashi, and Kakuho Furukawa for research support. Any remaining errors are our own. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  1. *1Research and Statistics Department, Bank of Japan (currently, Secretariat of the Policy Board)
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  2. *2Research and Statistics Department, Bank of Japan (currently, Financial System and Bank Examination Department)
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  3. *3Research and Statistics Department, Bank of Japan (currently, Hitotsubashi University)
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  4. *4Research and Statistics Department, Bank of Japan
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