AI adoption reduces the risk of 'zombie' firms not by making them more productive, but by making it impossible for them to lie to their banks.
Economists usually focus on AI as a production tool, but this paper finds its real power is in governance. By providing verifiable, real-time data signals, AI prevents failing firms from tricking external lenders into providing the 'life-support' loans that keep zombie companies from going bankrupt.
How AI Adoption Reduces the corporate zombification risk—— Evidence from China
SSRN · 6495759
Persistent corporate zombification poses a significant structural challenge in transition and developing economies, distorting firm survival dynamics and undermining allocative efficiency. While prevailing literature attributes this phenomenon primarily to institutional distortions, it largely overlooks how technological upgrading can reshape firm survival incentives by endogenously enhancing corporate governance. This paper contends that the adoption of Artificial Intelligence (AI) serves not m