Can investor attention defuse the risk of corporate zombification? – Empirical evidence from listed companies in China
Abstract
Solving the risk of zombification of enterprises and relieving their business difficulties, as a key element of supply-side structural reform, is the pain point of the conversion of old and new dynamic energy and the difficulty of economic transformation and upgrading. In the Internet era, the impact on business operations is also expanding with the widening of investor attention channels. This paper selects Chinese listed companies from 2011–2020 as a research sample, and the empirical results show that, first, investor attention can effectively reduce the risk of transforming enterprises into zombie enterprises, i.e., the risk of corporate zombification decreases as the level of investor attention increases; second, there is heterogeneity in the role of investor attention in resolving the risk of corporate zombification; third, further mechanism tests find that along with Third, further mechanistic tests reveal that as the level of investor attention increases, the level of environmental uncertainty decreases and the annual market value of individual stocks increases, thereby reducing the risk of corporate zombification. The findings of this paper provide theoretical support and empirical evidence for further improving the risk mitigation of corporate zombification, promoting the “de-emphasis” of enterprises, and leading the high-quality and healthy development of enterprises.
Keyword : zombie enterprises, investor focus, mechanism of action, probit model, empirical studies, business management
How to Cite
Lin, Y., & Zhang, X. (2023). Can investor attention defuse the risk of corporate zombification? – Empirical evidence from listed companies in China. Journal of Business Economics and Management, 24(2), 336–353. https://doi.org/10.3846/jbem.2023.19273
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173. https://doi.org/10.1037/0022-3514.51.6.1173
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Caballero, R. J., Hoshi, T., & Kashyap, A. K. (2008). Zombie lending and depressed restructuring in Japan. American Economic Review, 98(5), 1943–1977. https://doi.org/10.1257/aer.98.5.1943
Chernobai, A., & Yasuda, Y. (2013). Disclosures of material weaknesses by Japanese firms after the passage of the 2006 Financial Instruments and Exchange Law. Journal of Banking & Finance, 37(5), 1524–1542. https://doi.org/10.1016/j.jbankfin.2012.02.011
Chiu, P. C., Lourie, B., Nekrasov, A., & Teoh, S. H. (2021). Cater to thy client: Analyst responsiveness to institutional investor attention. Management Science, 67(12), 7455–7471. https://doi.org/10.1287/mnsc.2020.3836
Cooper, M. J., Dimitrov, O., & Rau, P. R. (2001). A rose.com by any other name. The Journal of Finance, 56(6), 2371–2388. https://doi.org/10.1111/0022-1082.00408
Da, Z., Engelberg, J., & Gao, P. (2011). In search of attention. The Journal of Finance, 66(5), 1461–1499. https://doi.org/10.1111/j.1540-6261.2011.01679.x
Drake, M. S., Roulstone, D. T., & Thornock, J. R. (2012). Investor information demand: Evidence from Google searches around earnings announcements. Journal of Accounting Research, 50(4), 1001–1040. https://doi.org/10.1111/j.1475-679X.2012.00443.x
Du, W., & Li, M. (2019). Can environmental regulation promote the governance of excess capacity in China’s energy sector? The market exit of zombie enterprises. Journal of Cleaner Production, 207, 306–316. https://doi.org/10.1016/j.jclepro.2018.09.267
Fan, X., Yuan, Y., Zhuang, X., & Jin, X. (2017). Long memory of abnormal investor attention and the cross-correlations between abnormal investor attention and trading volume, volatility respectively. Physica A: Statistical Mechanics and its Applications, 469, 323–333. https://doi.org/10.1016/j.physa.2016.11.009
Fukuda, S. I., & Nakamura, J. I. (2011). Why did ‘zombie’ firms recover in Japan?. The World Economy, 34(7), 1124–1137. https://doi.org/10.1111/j.1467-9701.2011.01368.x
Gompers, P. A., & Metrick, A. (2001). Institutional investors and equity prices. The Quarterly Journal of Economics, 116(1), 229–259. https://doi.org/10.1162/003355301556392
Guo, L. H., & Wang, Z. B. (2021). CEOs succession source, diversified career experience and zombie firms governance. Business and Management Journal, (09), 86–104 (in Chinese).
Hao, J., & Xiong, X. (2021). Retail investor attention and firms’ idiosyncratic risk: Evidence from China. International Review of Financial Analysis, 74, 101675. https://doi.org/10.1016/j.irfa.2021.101675
Homar, T., & Wijnbergen, S. V. (2013). On zombie banks and recessions after systemic banking crises: Government intervention matters. Tinbergen Institute, Duisenberg School of Finance. https://doi.org/10.2139/ssrn.2228611
Hoshi, T., & Kashyap, A. K. (2010). Will the US bank recapitalization succeed? Eight lessons from Japan. Journal of Financial Economics, 97(3), 398–417. https://doi.org/10.1016/j.jfineco.2010.02.005
Huang, S. Q., & Chen, Y. (2017). The distribution features and classified disposition of China’s zombie firms. China Industrial Economics, (03), 24–43 (in Chinese).
Jiang, L., Lu, Y., & Chen, Y. (2018). Can market mechanism help to cure zombie firm? Evidence from FDI liberation. The Journal of World Economy, 9, 121–145 (in Chinese).
Jin, X., Li, X., & Lu, J. (2019). Zombie firms’ negative externality on normal firms: Higher tax rates and more tax avoidance. Economic Research Journal, 12, 70–85 (in Chinese).
Kahneman, D., & Tversky, A. (1973). On the psychology of prediction. Psychological Review, 80(4), 237. https://doi.org/10.1037/h0034747
Kane, E. J. (1987). Dangers of capital forbearance: The case of the FSLIC and “zombie” S&Ls. Contemporary Economic Policy, 5(1), 77–83. https://doi.org/10.1111/j.1465-7287.1987.tb00247.x
Kwon, H. U., Narita, F., & Narita, M. (2015). Resource reallocation and zombie lending in Japan in the 1990s. Review of Economic Dynamics, 18(4), 709–732. https://doi.org/10.1016/j.red.2015.07.001
Liang, J. (2017). Can “zombie enterprises” find self-help road through technological innovation?. Chinese Studies, 6(03), 173. https://doi.org/10.4236/chnstd.2017.63017
Li, Q., Maggitti, P. G., Smith, K. G., Tesluk, P. E., & Katila, R. (2013). Top management attention to innovation: The role of search selection and intensity in new product introductions. Academy of Management Journal, 56(3), 893–916. https://doi.org/10.5465/amj.2010.0844
Lou, D. (2014). Attracting investor attention through advertising. The Review of Financial Studies, 27(6), 1797–1829. https://doi.org/10.1093/rfs/hhu019
Luo, Q., Zhang, Z. D., Wu, X. M., & Yu, T. Q. (2023). Dividend sentiment, dividend catering and stock price crash risk – empirical evidence based on search volume of Baidu index platform. Journal of Management Science, 26(02), 87–103.
Mathuva, D. M. (2010). The Influence of working capital management components on corporate profitability. Research Journal of Business Mangerment, 4(1), 1–11. https://doi.org/10.3923/rjbm.2010.1.11
Mitchell, M. L., & Mulherin, J. H. (1994). The impact of public information on the stock market. The Journal of Finance, 49(3), 923–950. https://doi.org/10.1111/j.1540-6261.1994.tb00083.x
Nakamura, J. I., & Fukuda, S. I. (2013). What happened to “zombie” firms in Japan?: Reexamination for the lost two decades. Global Journal of Economics, 2(02), 1350007. https://doi.org/10.1142/S2251361213500079
Nishimura, K. G., Nakajima, T., & Kiyota, K. (2005). Does the natural selection mechanism still work in severe recessions?: Examination of the Japanese economy in the 1990s. Journal of Economic Behavior & Organization, 58(1), 53–78. https://doi.org/10.1016/j.jebo.2004.03.008
Peek, J., & Rosengren, E. S. (2005). Unnatural selection: Perverse incentives and the misallocation of credit in Japan. American Economic Review, 95(4), 1144–1166. https://doi.org/10.1257/0002828054825691
Schiantarelli, F. (1996). Financial constraints and investment: Methodological issues and international evidence. Oxford Review of Economic Policy, 12(2), 70–89. https://doi.org/10.1093/oxrep/12.2.70
Shen, H., Yu, P., & Wu, L. (2012). State ownership, environment uncertainty and investment efficiency. Journal of Economic Research, 7, 113–126 (in Chinese).
Shin, H. H., & Park, Y. S. (1999). Financing constraints and internal capital markets: Evidence from Korean ‘chaebols’. Journal of Corporate Finance, 5(2), 169–191. https://doi.org/10.1016/S0929-1199(99)00002-4
Smales, L. A. (2020). Investor attention and the response of US stock market sectors to the COVID-19 crisis. Review of Behavioral Finance, 13(1), 20–39. https://doi.org/10.1108/RBF-06-2020-0138
Wang, W., & Liu, X. (2018). Why do zombie firms survive for a long time. China Industrial Economics, 10, 61–79 (in Chinese).
Xiao, W., & Guo, C. (2021). The non-linear impact of industrial policy on the disposal of zombie enterprises. Forest Chemicals Review, 4(15),192–202.
Yang, Y., Qi, Y., & Yang, S. (2021). Can government funding revive zombie enterprises? Evidence from listed Chinese manufacturing enterprises. Journal of Business Economics and Management, 22(6), 1633–1654. https://doi.org/10.3846/jbem.2021.15334
Yuan, W. (2018). Endogenous test methods, procedures and stata applications of binary selection model. Statistics & Decision, (06), 15–20 (in Chinese).
Zhang, X. M., & Tang, G. M. (2022). Industry-wide attention based on Internet searches and the cross-section of stock returns. China Economic Quarterly, (03), 773–794.
Aren, S., & Hamamci, H. N. (2020). Relationship between risk aversion, risky investment intention, investment choices: Impact of personality traits and emotion. Kybernetes. https://doi.org/10.1108/K-07-2019-0455
Baker, M., & Wurgler, J. (2006). Investor sentiment and the cross‐section of stock returns. The Journal of Finance, 61(4), 1645–1680. https://doi.org/10.1111/j.1540-6261.2006.00885.x
Barber, B. M., & Odean, T. (2008). All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors. The Review of Financial Studies, 21(2), 785–818. https://doi.org/10.1093/rfs/hhm079
Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173. https://doi.org/10.1037/0022-3514.51.6.1173
Bergh, D. D., & Lawless, M. W. (1998). Portfolio restructuring and limits to hierarchical governance: The effects of environmental uncertainty and diversification strategy. Organization Science, 9(1), 87–102. https://doi.org/10.1287/orsc.9.1.87
Caballero, R. J., Hoshi, T., & Kashyap, A. K. (2008). Zombie lending and depressed restructuring in Japan. American Economic Review, 98(5), 1943–1977. https://doi.org/10.1257/aer.98.5.1943
Chernobai, A., & Yasuda, Y. (2013). Disclosures of material weaknesses by Japanese firms after the passage of the 2006 Financial Instruments and Exchange Law. Journal of Banking & Finance, 37(5), 1524–1542. https://doi.org/10.1016/j.jbankfin.2012.02.011
Chiu, P. C., Lourie, B., Nekrasov, A., & Teoh, S. H. (2021). Cater to thy client: Analyst responsiveness to institutional investor attention. Management Science, 67(12), 7455–7471. https://doi.org/10.1287/mnsc.2020.3836
Cooper, M. J., Dimitrov, O., & Rau, P. R. (2001). A rose.com by any other name. The Journal of Finance, 56(6), 2371–2388. https://doi.org/10.1111/0022-1082.00408
Da, Z., Engelberg, J., & Gao, P. (2011). In search of attention. The Journal of Finance, 66(5), 1461–1499. https://doi.org/10.1111/j.1540-6261.2011.01679.x
Drake, M. S., Roulstone, D. T., & Thornock, J. R. (2012). Investor information demand: Evidence from Google searches around earnings announcements. Journal of Accounting Research, 50(4), 1001–1040. https://doi.org/10.1111/j.1475-679X.2012.00443.x
Du, W., & Li, M. (2019). Can environmental regulation promote the governance of excess capacity in China’s energy sector? The market exit of zombie enterprises. Journal of Cleaner Production, 207, 306–316. https://doi.org/10.1016/j.jclepro.2018.09.267
Fan, X., Yuan, Y., Zhuang, X., & Jin, X. (2017). Long memory of abnormal investor attention and the cross-correlations between abnormal investor attention and trading volume, volatility respectively. Physica A: Statistical Mechanics and its Applications, 469, 323–333. https://doi.org/10.1016/j.physa.2016.11.009
Fukuda, S. I., & Nakamura, J. I. (2011). Why did ‘zombie’ firms recover in Japan?. The World Economy, 34(7), 1124–1137. https://doi.org/10.1111/j.1467-9701.2011.01368.x
Gompers, P. A., & Metrick, A. (2001). Institutional investors and equity prices. The Quarterly Journal of Economics, 116(1), 229–259. https://doi.org/10.1162/003355301556392
Guo, L. H., & Wang, Z. B. (2021). CEOs succession source, diversified career experience and zombie firms governance. Business and Management Journal, (09), 86–104 (in Chinese).
Hao, J., & Xiong, X. (2021). Retail investor attention and firms’ idiosyncratic risk: Evidence from China. International Review of Financial Analysis, 74, 101675. https://doi.org/10.1016/j.irfa.2021.101675
Homar, T., & Wijnbergen, S. V. (2013). On zombie banks and recessions after systemic banking crises: Government intervention matters. Tinbergen Institute, Duisenberg School of Finance. https://doi.org/10.2139/ssrn.2228611
Hoshi, T., & Kashyap, A. K. (2010). Will the US bank recapitalization succeed? Eight lessons from Japan. Journal of Financial Economics, 97(3), 398–417. https://doi.org/10.1016/j.jfineco.2010.02.005
Huang, S. Q., & Chen, Y. (2017). The distribution features and classified disposition of China’s zombie firms. China Industrial Economics, (03), 24–43 (in Chinese).
Jiang, L., Lu, Y., & Chen, Y. (2018). Can market mechanism help to cure zombie firm? Evidence from FDI liberation. The Journal of World Economy, 9, 121–145 (in Chinese).
Jin, X., Li, X., & Lu, J. (2019). Zombie firms’ negative externality on normal firms: Higher tax rates and more tax avoidance. Economic Research Journal, 12, 70–85 (in Chinese).
Kahneman, D., & Tversky, A. (1973). On the psychology of prediction. Psychological Review, 80(4), 237. https://doi.org/10.1037/h0034747
Kane, E. J. (1987). Dangers of capital forbearance: The case of the FSLIC and “zombie” S&Ls. Contemporary Economic Policy, 5(1), 77–83. https://doi.org/10.1111/j.1465-7287.1987.tb00247.x
Kwon, H. U., Narita, F., & Narita, M. (2015). Resource reallocation and zombie lending in Japan in the 1990s. Review of Economic Dynamics, 18(4), 709–732. https://doi.org/10.1016/j.red.2015.07.001
Liang, J. (2017). Can “zombie enterprises” find self-help road through technological innovation?. Chinese Studies, 6(03), 173. https://doi.org/10.4236/chnstd.2017.63017
Li, Q., Maggitti, P. G., Smith, K. G., Tesluk, P. E., & Katila, R. (2013). Top management attention to innovation: The role of search selection and intensity in new product introductions. Academy of Management Journal, 56(3), 893–916. https://doi.org/10.5465/amj.2010.0844
Lou, D. (2014). Attracting investor attention through advertising. The Review of Financial Studies, 27(6), 1797–1829. https://doi.org/10.1093/rfs/hhu019
Luo, Q., Zhang, Z. D., Wu, X. M., & Yu, T. Q. (2023). Dividend sentiment, dividend catering and stock price crash risk – empirical evidence based on search volume of Baidu index platform. Journal of Management Science, 26(02), 87–103.
Mathuva, D. M. (2010). The Influence of working capital management components on corporate profitability. Research Journal of Business Mangerment, 4(1), 1–11. https://doi.org/10.3923/rjbm.2010.1.11
Mitchell, M. L., & Mulherin, J. H. (1994). The impact of public information on the stock market. The Journal of Finance, 49(3), 923–950. https://doi.org/10.1111/j.1540-6261.1994.tb00083.x
Nakamura, J. I., & Fukuda, S. I. (2013). What happened to “zombie” firms in Japan?: Reexamination for the lost two decades. Global Journal of Economics, 2(02), 1350007. https://doi.org/10.1142/S2251361213500079
Nishimura, K. G., Nakajima, T., & Kiyota, K. (2005). Does the natural selection mechanism still work in severe recessions?: Examination of the Japanese economy in the 1990s. Journal of Economic Behavior & Organization, 58(1), 53–78. https://doi.org/10.1016/j.jebo.2004.03.008
Peek, J., & Rosengren, E. S. (2005). Unnatural selection: Perverse incentives and the misallocation of credit in Japan. American Economic Review, 95(4), 1144–1166. https://doi.org/10.1257/0002828054825691
Schiantarelli, F. (1996). Financial constraints and investment: Methodological issues and international evidence. Oxford Review of Economic Policy, 12(2), 70–89. https://doi.org/10.1093/oxrep/12.2.70
Shen, H., Yu, P., & Wu, L. (2012). State ownership, environment uncertainty and investment efficiency. Journal of Economic Research, 7, 113–126 (in Chinese).
Shin, H. H., & Park, Y. S. (1999). Financing constraints and internal capital markets: Evidence from Korean ‘chaebols’. Journal of Corporate Finance, 5(2), 169–191. https://doi.org/10.1016/S0929-1199(99)00002-4
Smales, L. A. (2020). Investor attention and the response of US stock market sectors to the COVID-19 crisis. Review of Behavioral Finance, 13(1), 20–39. https://doi.org/10.1108/RBF-06-2020-0138
Wang, W., & Liu, X. (2018). Why do zombie firms survive for a long time. China Industrial Economics, 10, 61–79 (in Chinese).
Xiao, W., & Guo, C. (2021). The non-linear impact of industrial policy on the disposal of zombie enterprises. Forest Chemicals Review, 4(15),192–202.
Yang, Y., Qi, Y., & Yang, S. (2021). Can government funding revive zombie enterprises? Evidence from listed Chinese manufacturing enterprises. Journal of Business Economics and Management, 22(6), 1633–1654. https://doi.org/10.3846/jbem.2021.15334
Yuan, W. (2018). Endogenous test methods, procedures and stata applications of binary selection model. Statistics & Decision, (06), 15–20 (in Chinese).
Zhang, X. M., & Tang, G. M. (2022). Industry-wide attention based on Internet searches and the cross-section of stock returns. China Economic Quarterly, (03), 773–794.