Zombie Firms: Prevalence, Determinants, and Corporate Policies

Abstract

Using a comprehensive dataset of firms from seventy-nine countries, we document the incidence, determinants, and corporate policies of zombie firms from 2005 through 2016. Zombie firms account for roughly 10% of our observations. Using logit regressions, we find strong and robust evidence that countries with more efficient debt enforcement environments tend to have fewer zombie firms. In contrast, we find no evidence that the prevalence of zombie firms is related to national culture. We further find that zombie firms have conservative dividend and investment policies, aggressive leverage policies, and higher idiosyncratic risk. We conclude that zombie firms may impose a cost on the economy by impeding efficient resource allocation.

Keywords: Zombie firms; Debt enforcement; Corporate policies

JEL Classification: G32; G33