The recovery and exit of public zombie firms
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2022-08-31
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en
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The number of zombie firms (firms that are unable to cover debt servicing costs with their operating profits) has seen a steady increase over the last decades. This study analyses which determinants increase or decrease the odds for a zombie firm to recover or exit the market by using annual data of global public firm data over the period 2002 – 2021. My results show that the share of zombie firms has indeed increased in the last two decades, during which it rose from around 8% of all firms in 2002 to 12% in 2021, while peaking at 16% during the global financial crisis. The increase in zombie firms results in more capital and labour being held by insolvent firms, which would create more value if used by non-zombie firms, thus slowing down economic growth. The regression results show that employee downsizing and debt restructuring are effective in increasing the odds for zombie firms to recover, as well as increasing sales and investing in a firm’s assets. The odds for zombie firms to exit the market is significantly lower after the global financial crisis than during the crisis.
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Faculteit der Managementwetenschappen