IMF Working Papers

The Rise of the Walking Dead: Zombie Firms Around the World

Author/Editor:

Bruno Albuquerque ; Roshan Iyer

Publication Date:

June 16, 2023

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

We build a new dataset of listed and private nonfinancial zombie firms for a large set of Advanced Economies and Emerging Markets over the last two decades. We find that the share of these unproductive and unviable firms has been rising worldwide, especially since the GFC and the Covid-19 pandemic. We show that, perhaps surprisingly, the incidence of zombification is lower among private firms. Lower average survival rates of private firms may explain this phenomenon. We find important negative macrofinancial spillovers from zombie firms: nonzombies’ financial performance is persistently reduced in industries populated with a greater number of zombies. To mitigate these effects, we document that countries with stronger banks, and tighter macroprudential policies tend to have fewer zombies and stronger nonzombies. Strengthening the banking sector may, however, not be sufficient if insolvency frameworks are not well-prepared to deal with the restructuring or insolvency of firms.

Series:

Working Paper No. 2023/125

Subject:

Countercyclical capital buffers Credit Employment Financial regulation and supervision Financial sector policy and analysis Financial statements Labor Money Public financial management (PFM) Solvency

Frequency:

regular