Can Pump-and-Dump Manipulation and SEO Market Timing Boost Zombie Firms Back to Normal?

While prior studies have examined the accessibility of bank credit and government incentives for zombie firms, this paper addresses an important gap by investigating the relationship between pump-and-dump stock price manipulation and the timing of seasoned equity offerings (SEOs) as a de-zombification mechanism. Using a unique dataset of prosecuted manipulation cases in Taiwan from 2010 to 2025, we employ logistic regression models and a difference-in-differences (DID) approach. The results show that zombie firms orchestrate stock price manipulation, creating artificial price peaks to time their equity issuances. Interestingly, the optimal timing of SEO implementation, which maximizes capital surplus, appears to help firms escape zombie status. Our empirical findings challenge the conventional view that zombie firms raise capital merely to protect CEOs’ positions and defer bankruptcy rather than to improve firm performance. Based on these findings, we recommend that policymakers strengthen oversight of capital markets to prevent artificially inflated stock prices that mask corporate weaknesses and establish a legal framework to help zombie firms raise capital for revival.