Abstract: Properly dealing with zombie firms is an important issue of supply-side reform in China. Taking investment behavior choice of zombie firms as breakthrough point, the paper uses the data of Chinese listed companies during 2003-2015 as a sample to analyze the problem of investment efficiency of zombie firms, and the effect of government subsidy on investment efficiency of zombie firms. Zombie firms have significant inefficient investment behavior driven by underinvestment, and government subsidies aggravated the underinvestment of zombie firms; zombie firms hold a passive “self-redemption” attitude generally, and government′s financial subsidies provided a “hotbed” for this negative atmosphere. The conclusions may provide references for policy-making departments to formulate policies for the rescue and exit of zombie firms.

Key words: zombie firms, investment efficiency, overinvestment, underinvestment, government subsidy