Zombie Firms in Italy: A Critical Assessment

Rodano, Giacomo; Sette, Enrico

doi:10.2139/ssrn.3432542

Cited by 8 publications

(6 citation statements)

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“…This value reaches 96% for DRA-I firms (Table A.1). More than 80% of DRA firms and over 90% of CC firms are 'zombie' firms, that is businesses for which the interest coverage rate took on a value below 1 in at least one of the three years prior to the procedure (this definition has been used by Rodano and Sette, 2019). Along both dimensions, CC firms appear to be worse off than DRA firms, but DRA-I firms show values aligned with those of CC firms (in particular, notice that all DRA-I firms in our sample are 'zombies' according to the previous definition).…”

Section: Balance Sheet Variablesmentioning

confidence: 99%

Business Continuity in Times of Distress: Debt Restructuring Agreements and Compositions with Creditors in Italy

et al. 2020

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The Italian insolvency framework makes several restructuring tools available to firms and their creditors, so that distress does not necessarily lead to liquidation. This paper analyses two such instruments: debt restructuring agreements (DRAs) and compositions with creditors (CCs), both commonly used to reorganize distressed firms and preserve their continuity. These procedures typically involve large firms, particularly in the case of DRAs where judicial control over negotiations is milder. Firms using DRAs are in less critical economic conditions when they file for restructuring, but they do so after longer periods of distress. Despite their declared aim, the effectiveness of these instruments in terms of business continuity is limited: many firms that use them end up exiting the market, in particular in DRAs. Firms that survive display only partial recovery, which is relatively more intense in CCs. However, the apparently superior performance of CCs is overshadowed by the long duration of restructuring, which may prevent us from observing definitive outcomes.

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Section: Balance Sheet Variablesmentioning

confidence: 99%

Business Continuity in Times of Distress: Debt Restructuring Agreements and Compositions with Creditors in Italy

et al. 2020

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“…Starting from the OECD definition (red line on top), we see that adding financial revenues (orange, long-dash) already has a sizeable impact on the number of firms identified as zombies. Further, using cash flows (EBITDA) rather than EBIT substantially reduces the number and importance of zombies (see also Rodano and Sette (2019) for a similar impact when applied to Italian firms). Finally, assessing cash flow deficiencies over a three-year horizon, rather than on a year-by-year basis, leads to a substantial increase in the number of zombie firms (but still substantially less than using the OECD definition).…”

Section: New Approach To Classify Zombie Firmsmentioning

confidence: 96%

“…Most importantly, this implies abstracting from depreciation and amortization as well as including recurring financial revenues (from liquid assets or intercompany loans, for instance). Starting from EBITDA and including recurring financial revenues, therefore, avoids wrongly classifying healthy firms as zombies: firms with recent large investments (high EBITDA, low EBIT firms (Rodano and Sette, 2019)), firms with high cash levels (typically small firms), and firms that grant intercompany loans (typically large firms).…”

Section: Introductionmentioning

confidence: 99%

Bank Specialization and Zombie Lending

2021

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“…The growth of healthy businesses is thus limited, together with the increased creation of barriers for start-ups (Caballero et al 2008). Moreover, Rodano and Sette (2019) also point out that production factors are used in inefficient firms, which reduces the allocation efficiency of the economy.…”

Section: Introductionmentioning

confidence: 99%

Zombie Firms during and after Crisis

Blažková

Chmelíková

2022

JRFM

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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.

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Zombie Firms in Italy: A Critical Assessment

Cited by 8 publications

References 0 publications

Business Continuity in Times of Distress: Debt Restructuring Agreements and Compositions with Creditors in Italy

Business Continuity in Times of Distress: Debt Restructuring Agreements and Compositions with Creditors in Italy

Bank Specialization and Zombie Lending

Zombie Firms during and after Crisis

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