Professor Co-Pierre Georg, EDHEC Business School

"Contagious Zombies"
Thursday, 9 November. 3 pm
Room 355 Gilbert Scott Building

Abstract

We show that particularly weak German banks used the European Central Bank’s very long-term refinancing operations (VLTROs) to evergreen exposures to zombie firms. Zombie firms that obtain more credit after the introduction of the VLTROs had a substantially elevated subsequent default probability. This suggests that either positive private information did not materialize or the decision to engage in zombie lending was not driven by any such private information. At the time of loan extension, banks that resort to the VLTRO report lower borrower-specific probabilities of default, reduce loan loss provisions and lower their credit standards relative to banks who lend to the same firm but have not resorted to the VLTRO. Zombie firms, which obtained additional funding from banks relying to a larger extent on VLTRO funding, in turn increase their accounts payable and advance payments received from downstream and upstream firms. This suggests that suppliers relying on banks’ lending decisions as a signal about borrowers’ credit quality might be misled by banks’ zombie lending to extend more trade credit to zombie firms exposing suppliers to elevated contagion risk.

Bio

Co-Pierre Georg joined EDHEC Business School from the University of Cape Town, where he was an Associate Professor and South African Reserve Bank Research Chair in Financial Stability Studies. He obtained his PhD in 2011 from the University of Jena and later joined the Deutsche Bundesbank Research Centre, where he held a part-time position after joining the University of Cape Town in 2013. At UCT, Co-Pierre established a master's degree in financial technology and launched the UCT-Algorand Financial Innovation Centre. His research focuses on financial and social interconnections and his work has been published in leading journals in economics and finance. He serves as associate editor for the Journal of Economic Dynamics and Control and for the Journal of Financial Stability.

For further information, please contact business-school-research@glasgow.ac.uk

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First published: 14 September 2023

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