Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe

By D. Andrews, Filippos Petroulakis. Social Science Research Network, 2017

142 citations recorded by the source corpus.

This paper explores the connection between “zombie” firms (firms that would typically exit in a competitive market) and bank health and the consequences for aggregate productivity in 11 European countries. Controlling for cyclical effects, the results show that zombie firms are more likely to be connected to weak banks, suggesting that the zombie firm problem in Europe may at least partly stem from bank forbearance. The increasing survival of zombie firms congests markets and constrains the growth of more productive firms, to the detriment of aggregate productivity growth. Our results suggest that around one-third of the impact of zombie congestion on capital misallocation could be directly attributed to bank health and additional analysis suggests that this may partly be due to reduced availability of credit to healthy firms. Finally, improvements in bank health are more likely to be associated with a reduction in the prevalence of zombie firms in countries where insolvency regimes do not unduly inhibit corporate restructuring. Thus, leveraging the important complementarities between bank strengthening efforts and insolvency regime reform would contribute to breaking the shackles on potential growth in Europe.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/9e0a551cbc68cbe197b77d30d05cd22d2ab76d83

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. D. Andrews
2. Muge Adalet McGowan
3. V. Millot
4. R. Banerjee
5. Boris Hofmann
6. Filippos Petroulakis
7. Peter Gal

In Economics and Econometrics

1. D. Andrews
2. Muge Adalet McGowan
3. V. Millot
4. R. Banerjee
5. Boris Hofmann
6. Filippos Petroulakis
7. Peter Gal

In Finance

1. Muge Adalet McGowan
2. V. Millot
3. D. Andrews

Citations in the corpus

• The walking dead? Zombie firms and productivity performance in OECD countries (2018, methodology): “34 More concretely, using the same definition of zombie firms and linking firms to banks, Andrews and Petroulakis (2017) estimate that around one-third of the adverse impact of zombie congestion on productivity-enhancing capital reallocation can be accounted for by weak banks.”