| Summary/Abstract |
Using data on firms listed on Chinese A-share markets from 2009 to 2017, this paper applies the difference-in-difference model to test the effect of trade facilitation on preventing the formation of zombie firms. We find that the China Railway Express (CRE) significantly prevented the formation of such firms. Mechanism tests show: (i) the CRE has accelerated the speed of sales, which increased the overseas sales revenue of firms; (ii) the economies of scale and the capital accumulation effect caused by the CRE can help increase firms’ solvency and development ability. Heterogeneity analysis indicates that the effect of the CRE on preventing the formation of zombie firms is mainly reflected in non-state-owned firms, firms in highly competitive industries, and firms in the eastern region of China. We suggest that China should continue to promote trade facilitation by expanding the CRE and strengthening the market's dominant role in preventing the formation of zombie firms. Disadvantaged firms should seize the development opportunities brought by the CRE.
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