The Rise of Zombie Firms: Causes and Consequences

12 Pages Posted: 30 Nov 2018

See all articles by Ryan Banerjee

Ryan Banerjee

Bank for International Settlements (BIS)

Boris Hofmann

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: September 1, 2018

Abstract

The rising number of so-called zombie firms, defined as firms that are unable to cover debt servicing costs from current profits over an extended period, has attracted increasing attention in both academic and policy circles. Using firm-level data on listed firms in 14 advanced economies, we document a ratcheting-up in the prevalence of zombies since the late 1980s Our analysis suggests that this increase is linked to reduced financial pressure, which in turn seems to reflect in part the effects of lower interest rates. We further find that zombies weigh on economic performance because they are less productive and because their presence lowers investment in and employment at more productive firms.

JEL Classification: D22, D24, E43, G33

Suggested Citation

Banerjee, Ryan and Hofmann, Boris, The Rise of Zombie Firms: Causes and Consequences (September 1, 2018). BIS Quarterly Review Spetember 2018, Available at SSRN: https://ssrn.com/abstract=3288098

Ryan Banerjee (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Boris Hofmann

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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