In this study, the economic effects of the zombies on non-zombie firms’' behavior are analyzed through econometric methodolog along with policy implications for corporate restructuring. The suggestions made here include the corporate restructuring system which facilitates efficient handling of zombie firms and boosting the corporate restructuring market in Korea. The results from empirical analysis are summarized as follows:
 

First, the number of zombie firms was the greatest during the period between 1997-1998 when the Korean economy suffered from the financial crisis. In 1997, out of the entire sample, 35.2% were zombie firms and year 2008 when another financial crisis began saw a high level of zombie firms accounting for 23.1%. on the whole, the portion of small and medium enterprises (SMEs) in zombie firms was greater than that of large companies. Over the entire period, SMEs represents about 88.5% while the ratio of large companies stands at just around 12%.

Second, when it comes to profitability by size of enterprises, SMEs had lower profitability than that of large companies. In particular, small and medium-sized zombie firms were much less profitable compared to their larger counterparts. The former have also remarkably higher debt ratio than the latter. Moreover, the ratio of short-term loan is much higher in SMEs compared to
larger ones.

Third, the analysis on the entire sample of companies produces little effect of zombie firms on investment and employment of non-zombie firms. However, small and medium-sized zombie firms have a marked effect on restricting employment and investment of small and medium-sized non-zombie firm. In other words, when there are more zombies in the industry, a negative shock leads to a larger reduction in employment creation and reduction in investment carried out by the small and medium-sized non-zombies.

Fourth, for large companies and SMEs, the effects of more productive ones in terms of capital productivity are negatively related to the loan from banks. This means firms with lower capital productivity are more likely to increase their loan from banks, implying the persistence of numerous problems in banks' loan policy.

This study attempts to suggest some policy measures for corporate restructuring through the market mechanism.

To begin with, the Corporate Restructuring Promotion Act which was abolished at the end of 2010 needs to be reinstated. The act enacted in 2001 played an important role in corporate restructuring in Korea, but was criticized for invasion of private autonomy or excessive limit on property right. Its rebirth as an organization for corporate restructuring is required after correcting and remedying these shortcomings.

Second, efficient handling of bad debts of companies calls for formation of a market where trade of non-performing loans is possible, which paves way for competition and active trading of private non-performing loans. The infrastructure for supplying such non-performing loans needs to be reorganized for their trading.

Third, Korea currently has a complicated regulatory system of private equity fund (PEF) with higher level of regulations compared to foreign rivals, so relaxing these regulations is necessary. There was an expansion in limit on borrowing the PEF for stabilizing corporate finance currently up to 200%, but this kind of restriction has to be lifted on a wider basis in the future.

Fourth, restructuring of SMEs will have difficulty when specific method like debt rescheduling is exclusively adopted in achieving policy goals. Given the small scale of restructuring in case of SMEs, it is desirable to allow creditor to lead the process of corporate restructuring. on the contrary, diverse institutions of corporate restructuring can be applied to those enterprises forming the backbone of the national economy such as the PEF for stabilizing corporate finance recently introduced in the Capital Markets Act and the PEF for improving corporate finance stipulated in the Industrial Development Act. More smooth restructuring of small and medium-sized zombie firms calls for greater supply basis by allowing non-performing loans of them owned by banks to be traded in the market.