How Does Competition Affect Zombie Firms?

43 Pages Posted: 27 Dec 2022

See all articles by Marc Brunner

Marc Brunner

University of Bern - Institute for Financial Management

Angela De Martiis

University of Bern, Institute for Financial Management

Philip Valta

University of Bern

Date Written: December 23, 2022

Abstract

This paper analyzes the effects of product market competition on zombie firms in the US using a large sample of publicly traded firms. First, we show that the asset-weighted share of zombie firms at the industry level decreases significantly with more competition. This decrease is mostly pronounced in industries characterized by a low concentration and low margins. Second, neither the exit or default probability, nor the recovery likelihood are significantly affected by changes in competition. Third, at the firm level, zombie firms grow more slowly, reduce their assets and cash holdings, issue less equity, and obtain smaller loans. These findings suggest that zombie firms adapt to higher competition by scaling down the size of the firm.

Keywords: Zombie firms, Product market competition, Financial policies

JEL Classification: D22, E44, G31, G32, G33

Suggested Citation

Brunner, Marc and De Martiis, Angela and Valta, Philip, How Does Competition Affect Zombie Firms? (December 23, 2022). Available at SSRN: https://ssrn.com/abstract=4310399 or http://dx.doi.org/10.2139/ssrn.4310399

Marc Brunner

University of Bern - Institute for Financial Management ( email )

Engehaldenstrasse 4
Bern, CH-3012
Switzerland

Angela De Martiis

University of Bern, Institute for Financial Management ( email )

Engehaldenstrasse 4
Bern, 3012
Switzerland

Philip Valta (Contact Author)

University of Bern ( email )

Engehaldenstrasse 4
Bern, 3012
Switzerland

HOME PAGE: http://https://www.ifm.unibe.ch/about_us/people/prof_dr_valta_philip/

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