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

IMF Working Papers, June 16, 2023

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Built 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.
Focus on "nonfinancial zombie firm", "unviable firm", and "zombie firm" as central concepts used throughout the analysis.
Uses panel data spanning two decades to compare listed and private firms.

The share of unproductive and unviable firms has been rising worldwide, especially since the GFC and the Covid-19 pandemic.
The incidence of zombification is lower among private firms; lower average survival rates of private firms may explain this phenomenon.
Countries with stronger banks, and tighter macroprudential policies tend to have fewer zombies and stronger nonzombies.
Strengthening the banking sector may not be sufficient if insolvency frameworks are not well-prepared to deal with the restructuring or insolvency of firms.

Important negative macrofinancial spillovers from zombie firms are documented.
Nonzombies’ financial performance is persistently reduced in industries populated with a greater number of zombies.
Congestion effects and impacts on corporate investment and employment are emphasized as channels of harm.

Strengthen banking sector resilience to reduce the incidence of zombie firms.
Tighten macroprudential policies as a tool to lower zombie prevalence and support nonzombies.
Improve insolvency frameworks to ensure effective restructuring or orderly insolvency of firms; bank-strengthening alone may be insufficient without capable insolvency processes.

Subject: Countercyclical capital buffers, Credit, Employment, Financial regulation and supervision, Financial sector policy and analysis, Financial statements, Labor, Money, Public financial management (PFM), Solvency
Keywords: Congestion effects, Corporate investment, Countercyclical capital buffers, Credit, Employment, Financial statements, Global, insolvency framework, insolvency of firm, Listed and private firms, Macroprudential policies, nonfinancial zombie firm, Panel data, Solvency, unviable firm, zombie firm, Zombie firms