Extraordinary fiscal and monetary interventions in response to the COVID-19 pandemic have revived concerns about zombie prevalence in advanced economies. The literature has already linked this phenomenon - observed over the course of the last two decades - to impeding the performance of healthy firms in Japan and Europe. To make the case for the United States, we analyze banks' and capital markets' zombie-lending practices on the basis of a sample of publicly listed U.S. companies. Our results suggest that zombie prevalence and zombie-lending per se are not a defining characteristic of the U.S. economy. Nevertheless, we find evidence for negative spillovers of zombie-lending on productivity, capital-growth, and employment-growth of non-zombies as well as on overall business dynamism. It is predominantly the class of healthy small- and medium-sized companies that is sensitive to zombie-lending activities, with financial constraints further amplifying these effects.
