Zombie Firms during and after Crisis

Abstract

The phenomenon of zombie firms is gaining the attention of economists across different countries of the world; the increased interest is particularly evident after periods of economic crises. In our study, we focus on the development of zombie firms in the period before and after the 2008 crisis within two different economies, i.e., Germany and the Czech Republic, to provide insight into how different conditions and the overall economic context affect the fact that companies are more prone to becoming zombie firms. We implemented a difference-in-differences regression model to estimate the treatment effect by comparing the change (difference) in the differences in observed outcomes between these two countries. The data were obtained from two databases—the database Albertina by Bisnode a.s. providing financial statements of enterprises in the Czech Republic, and the database provided by Creditreform AG, which includes annual report data for a large sample of German companies. The dataset of German enterprises included 1,444,698 observations, i.e., 338,923 firms, and the dataset of Czech enterprises included 2,139,462 observations, i.e., 523,542 firms, both across the years 2000–2016, i.e., the data sample covered the period before and after the 2008 crisis. The different development of the share of zombie firms after the great financial crisis between Germany and the Czech Republic was proven as statistically significant. The findings confirm Germany is a country with a more stable economy and with a significantly lower risk of zombie firms’ persistence, while the Czech Republic is at the level of the European average in terms of zombie share. The results also suggest an influence of post-crisis monetary policy on companies and the possible link between low interest rates and a growing share of zombies.

State ownership and zombie firms: Evidence from China's 2008 stimulus plan

“…McGowan et al (2018) examine whether the formation of zombie firms is only a cyclical phenomenon. Blažková and Chmelíková (2022) find that there is a link between low interest rates and the increase in zombie firms by examining the impact of monetary policy on zombie firms in Germany and the Czech Republic after the stimulus package. Different from this literature that studies the effects of stimulus packages on macro-economy or on micro-entities, our paper considers the use of the SOE share as a channel to further discover the mechanism of zombie firm generation by focussing on the four trillion stimulus plan.…”

The impact of mixed-ownership reform on zombie firms: Evidence from Chinese listed SOEs

“…Subsequently, some scholars have defined zombie firms from the perspectives of Firm age and value of interest coverage ratio [ 15 ], profitability and stock market valuation [ 9 ]. Additionally, scholars have discussed the causes of zombie firms from the angles of banks’ motivations to conceal bad loans [ 7 , 16 – 18 ] and government’s public objectives (employment, taxation, social stability, etc.) [ 19 – 21 ].…”