The Life and Death of Zombies – Evidence from Government Subsidies to Firms

35 Pages Posted: 14 May 2020

See all articles by Satu Nurmi

Satu Nurmi

Government of the Republic of Finland - Statistics Finland

Juuso Vanhala

Bank of Finland

Matti Viren

Bank of Finland - Research

Date Written: May 14, 2020

Abstract

We analyze the demographics of zombie firms and durations of zombie spells as well as their determinants, including an application on public subsidies using firm level population panel data from Finland. Firm-level analysis of firm demographics reveals that zombie-firms, as commonly defined in the literature, are often not truly distressed firms but rather companies with temporarily low revenues relative to interest payments. More importantly, we find that roughly a third of these firms are in fact growing companies and two thirds recover from the zombie status to become healthy firms. We also show that the increase of zombie firms over the past 15 years has mainly been driven by cyclical factors, as opposed to a secular trend. In our policy application on government subsidies to firms, estimation results strongly suggest that subsidy-receiving firms are less likely to die, regardless of the type of subsidy. However, with regard to recovery there is heterogeneity in the effects depending on the type of firm and the type of subsidy received. Thus, we do not find a robust positive association of subsidies with zombie recovery.

Keywords: Zombies, Misallocation, Firm exit, Firm growth, Subsidies, Productivity

JEL Classification: D22, D24, G33, H25, L16, L25, O25

Suggested Citation

Nurmi, Satu and Vanhala, Juuso and Viren, Matti, The Life and Death of Zombies – Evidence from Government Subsidies to Firms (May 14, 2020). Bank of Finland Research Discussion Paper No. 8/2020, Available at SSRN: https://ssrn.com/abstract=3601386

Satu Nurmi

Government of the Republic of Finland - Statistics Finland ( email )

Finland

Juuso Vanhala (Contact Author)

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Matti Viren

Bank of Finland - Research ( email )

P.O Box 160
FIN-00101 Helsinki
Finland
+358 10 831 2563 (Phone)
+358 10 831 2294 (Fax)

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