【Discussion Paper Series by ESRC-JSPS Research Project on Japan and the UK】
Ex-ante and ex-post evaluation of zombie firms arising from the EAS program during the COVID-19 pandemic: A study of Japanese SMEs
This study aims to provide an ex-ante and ex-post evaluation of the Employment Adjustment Subsidy (EAS) that the Japanese government extended to unprecedented levels during the COVID-19 pandemic. Using unique monthly data from firm-level surveys conducted by the JILPT and the TDB, we investigate what types of firms applied for the EAS and how their subsequent performance evolved. A key contribution of our study is that we provide an ex-post evaluation of the EAS on firm performance for approximately two years during the pandemic. As in previous studies, we confirm that most of the firms that applied for the EAS were not zombies before the pandemic. However, their subsequent sales were much poorer than those of non-applicant firms even more than a year after the initial application. The feature was conspicuous in 2021, especially for small-scale firms in troubled sectors, unless they received extra support. This suggests that the initial large-scale subsidy was not successful in preventing the zombification of troubled firms during the pandemic.
