Working Paper
Wasted Innovation? Zombie Firms, R&D Misallocation, and Productivity Slowdown
This paper studies how zombie debt affects innovation, investment, firm selection, and productivity growth. Using Canadian firm-level data, I document that zombie firms reduce R&D, investment, sales, and employment while accumulating more debt. I develop a quantitative model in which cash-flow-based borrowing can support firm growth but may also sustain older, less dynamic firms and distort the allocation of capital. The model reveals a trade-off between innovation and selection: moderate restrictions on debt can reduce zombie persistence and raise aggregate growth, while eliminating zombie firms entirely can restrict borrowing, weaken innovation incentives, and lower growth.
Work in Progress
Is It the Journey or the Destination? Knowledge Capital Dynamics Across Firms and Workers
Joint with Mark Rempel
This project studies how mergers and acquisitions reallocate codified knowledge, such as patents, and worker-based knowledge embodied in R&D personnel. It examines whether firms acquire innovation by purchasing patent portfolios, retaining knowledge-producing workers, or building knowledge internally.
Financial Frictions, Intangible Capital, and Misallocation
Joint with Jonathan Brasseur
This project studies whether financing constraints faced by intangible-intensive firms help explain productivity differences between Canada and the United States. It examines how intangible assets, collateral constraints, and financial frictions affect borrowing, firm growth, and the allocation of capital.
Bank Regulation, Relationship Lending, and Zombie-Firm Persistence
Joint with Robert Clark and Juan Sebastián Vélez
This project uses matched Colombian bank–firm data to study how zombie firms arise through bank lending decisions. We examine how banks respond to financially weak borrowers when they must recognize default risk while also satisfying minimum solvency requirements. The project studies whether banks treat weak firms differently depending on the strength of their existing lending relationships and how these decisions affect firms’ persistence as zombies, recovery, and exit.
Tam Le 