The walking dead? Zombie firms and productivity performance in OECD countries

By Muge Adalet McGowan, D. Andrews, V. Millot. Economic Policy, 2018

418 citations recorded by the source corpus.

This paper explores the extent to which “zombie” firms – defined as old firms that have persistent problems meeting their interest payments – are stifling labour productivity performance. The results show that the prevalence of and resources sunk in zombie firms have risen since the mid-2000s and that the increasing survival of these low productivity firms at the margins of exit congests markets and constrains the growth of more productive firms. Controlling for cyclical effects, cross-country analysis shows that within-industries over the period 2003-2013, a higher share of industry capital sunk in zombie firms is associated with lower investment and employment growth of the typical non-zombie firm and less productivity-enhancing capital reallocation. Besides limiting the expansion possibilities of healthy incumbent firms, market congestion generated by zombie firms can also create barriers to entry and constrain the post-entry growth of young firms. Finally, we link the rise of zombie firms to the decline in OECD potential output growth through two key channels: business investment and multi-factor productivity growth

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/f2160230a2c2047b418c3ded53b2152fde85113e

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Citations in the corpus

Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe (2017, positive): “These gains are partly realized via the restructuring of weak firms, which in turn spurs the reallocation of capital to more productive firms (Adalet McGowan et al. 2018) and generates MFP gains within laggard firms via more efficient technological adoption (Adalet McGowan et al. 2017).”
Zombie Credit and (Dis-)Inflation: Evidence from Europe (2020, background): “Adalet McGowan et al. (2018) and Acharya a result, higher average production costs in industries with a high zombie share.”
Corporate Zombies: Anatomy and Life Cycle (2020, methodology): “Adalet McGowan et al. (2018) have documented that the number of zombie firms has increased significantly across the advanced economies in the wake of the Great Financial Crisis (GFC), while Banerjee and Hofmann (2018) document a longer-lasting trend increase since the 1980s.”
The Rise of Zombie Firms: Causes and Consequences (2018, methodology): “The focus on listed companies allows us to consider two different ways of identifying zombie firms: a broad measure proposed by Adalet McGowan et al (2017), based on persistent lack of profitability in mature firms; and a narrow one proposed by Banerjee and Hofmann (2018), which additionally…”
The COVID‐19 Pandemic and Its Impact on the Global Economy: What Does It Take to Turn Crisis into Opportunity? (2020, background): “While the rise of zombie firms has been going for a while across major economies (McGowan et al., 2018), the fiscal expansion in reviving the economy during the COVID-19 is very likely to worsen the situation.”