Specifically, they showed that firms were more likely to receive additional loans if they were in fact in poor financial condition. They interpreted this finding as being consistent with the ‘zombie lending’ incentives of undercapitalized banks. Figure 2 shows that the percentage of zombie firms increased from roughly 5% in 1991 to roughly 30% in 1996.
In related work, Mariassunta Giannetti and Andrei Simonov (2013) found that banks that remained weakly capitalized after the introduction of the recapitalization programmes provided loans to impaired borrowers, while well-capitalized banks increased credit to healthy firms. The authors estimated that the credit supply to healthy firms could have been 2.5 times higher in 1998 if banks had been recapitalized sufficiently.