20230615-IMF-The_Rise_of_the_Walking_Dead_Zombie_Firms_Around_the_World_69页_2mb

The Role of Zombie Firms and Macrofinancial Spillovers

Key Points:

1. Rise of Zombie Firms: Listed and private zombie firms (firms in financial distress and unprofitable) have increased steadily over the last two decades, especially since the Global Financial Crisis (GFC). Their surge coincided with periods of low interest rates, abundant liquidity, and unprecedented policy support during the COVID-19 pandemic. After a temporary decline, zombie shares resumed growth, reflecting sustained policy lifelines (Jr., JPBC).

2. Higher in Listed Firms: The share of zombie firms grew more sharply for listed firms (>10% from 2000 to 2021) than private firms (1-5%), yet appears lower due to higher exit rates among private firms (WcP, CkA).

3. Industry & Country Patterns: Zombie firms are prevalent in durable goods producers (e.g., real estate, energy, consumer discretionary) that face volatile demand and price swings. Heterogeneity across countries shows weaker banking and less-prepared insolvency regimes correlate with higher zombification.

4. Balance Sheet Characteristics: Zombies exhibit lower investment, profitability, productivity, liquid assets, and higher leverage. New zombies show significant pre-classification declines in ROA and sales growth. Default risk is higher, and bank lending costs are elevated for listed zombies compared to nonzombies.

5. Congestion Effects: Zombies negatively impact healthy firms' investment, employment, and credit access, often linked to 'evergreening' – banks extending loans to avoid writedowns. Effects are more pronounced in countries with looser macroprudential policies and weaker insolvency frameworks.

6. Policy Mitigation: Strengthening bank capital buffers, tightening macroprudential policies, and enhancing corporate insolvency frameworks can reduce negative spillovers from zombie lending (Giannetti & Simonov, 2013; Storz et al., 2017).

Limits & Data Caveats:

• Private firms suffer from lower data coverage. Zombie definitions are context-dependent, often yielding comparable shares (Altman et al., 2022).
• Factors like SOE involvement, SME fragility, and policy variations complicate cross-country comparisons.

Supporting Financial Data Tools:

• Orbis (Bureau van Dijk), Compustat, Worldscope, Credit Default Swap (CDS) indexes for credit quality and default risk were utilized.
• Macroprudential policy indicators, regulatory capital buffers, and insolvency preparedness frameworks from the IMF (iMaPP) were employed to assess policy effectiveness.