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The Role of Bank CEOs in Zombie Lending During a Crisis: Evidence from India
Published online by Cambridge University Press: 23 June 2025
Abstract
A well-documented pattern of bank lending during crises is allocating credit to insolvent firms at the expense of productive firms, leading to inefficient resource allocation at the macro level. I investigate the role of bank CEOs in influencing such distortions during crises, using the strictly enforced age-based retirement policy of Indian government-controlled banks. I find that banks experiencing a CEO turnover in a crisis are less likely to bail out insolvent borrowers, as the new CEO has a lower incentive to do so. Consequently, the efficiency of credit allocation improves, and the zombification of the economy decreases.
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- Research Article
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- © The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
I thank Stephan Siegel (the editor) and Olivier Wang (the referee) for their helpful suggestions. I thank Vikrant Vig for his valuable guidance. I thank participants at the ISB seminar for useful comments. I also thank Prateek Manikpuri and Hrishikesh Relekar for excellent research assistance. Any remaining errors are mine.
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