Zombie firms have been on the rise and survive longer
… under some conditions low rates may generate long-lasting damage to productivity, including by amplifying the financial cycle, thereby contributing to the emergence of zombie firms. In turn, persistently low rates may also encourage lenders to be more forgiving, especially as they hunt for yield and/or find the opportunity cost of not pulling the plug lower, thereby allowing zombies to survive for longer.
A blind spot in today’s macroeconomics?
Author: Claudio Borio
From: BIS
Zombie firms feed off weak banks
Whereas relationships with stressed banks reduce small and medium-sized enterprises leverage on average, we also show that zombie firms that are tied to weak banks in euro area periphery countries increase their indebtedness even further. Sustainable economic recovery therefore requires both: deleveraging of banks and firms.
Do We Want These Two to Tango? On Zombie Firms and Stressed Banks in Europe
Authors: Manuela Storz, Michael Koetter, Ralph Setzer, Andreas Westphal
From: ECB, Halle Institute for Economic Research
…and this continuing “zombie lending” by weakly-capitalized banks contributed to the slow Eurozone recovery after the ECB’s Outright Monetary Transactions. Acharya and al. argue that zombie firms when they received these loans they didn’t use these funds to undertake real economic activity such as employment and investment but instead they used them to build up cash reserves.
Whatever It Takes: The Real Effects of Unconventional Monetary Policy
Authors: Viral V. Acharya, Tim Eisert, Christian Eufinger, Christian Hirsch
From: Reserve Bank of India, Erasmus University Rotterdam, IESE Business School, Goethe University Frankfurt
Zombie firms are a key concern in China
Zombie firms and SOEs, argue Lam and al., have had a significant negative effect on the Chinese productivity and represent a large percentage of corporate debt. They estimate that resolving these firms will add around 0.7–1.2 percentage points to economic growth per year.
Resolving China Zombies: Tackling Debt and Raising Productivity
Authors:W. Raphael Lam ; Alfred Schipke ; Yuyan Tan ; Zhibo Tan
From: IMF
