Rise of the Zombie Corporations: Percentage Keeps Increasing, BIS Explains Why

The BIS discusses zombie corporations. Cheap financing is the primary cause. The result is low productivity.

In its latest quarterly report the Bank of International Settlements (BIS) discusses the Rise of Zombie Firms: Causes and Consequences.

> Zombie firms, meaning firms that are unable to cover debt servicing costs from current profits over an extended period, have recently attracted increasing attention in both academic and policy circles.

  • The rising number of so-called zombie firms, defined as firms that are unable to cover debt servicing costs from current profits over an extended period, has attracted increasing attention in both academic and policy circles.
  • Using firm-level data on listed firms in 14 advanced economies, we document a ratcheting-up in the prevalence of zombies since the late 1980s.
  • Our analysis suggests that this increase is linked to reduced financial pressure, which in turn seems to reflect in part the effects of lower interest rates.
  • We further find that zombies weigh on economic performance because they are less productive and because their presence lowers investment in and employment at more productive firms.

Globally, the number of zombie firms is over 12 percent. In the US the number approaches 15 percent.

Tesla is an example of a Zombie firm.

If and when Tesla and other zombie corporation are unable to roll over debt, they will immediately go bankrupt.

Mike "Mish" Shedlock

Comments (7)
No. 1-6
Kinuachdrach
Kinuachdrach

Question is whether zombies going bankrupt is going to impact the real economy (production of goods & services) or only the financial economy?

If (when?) Tesla, for example, goes bankrupt, it would be bad news for the investors who bought stock or bonds from Tesla. But someone might buy the factory for pennies on the dollar (maybe even Musk himself?) and keep on churning out electric cars. Or, more likely, China buys the plant and ships it back to China -- rather as they did with some of the UK steelworks -- and starts exporting Teslas to the US. From watching movies, the point about zombies is they are hard to kill.

2banana
2banana

Mish - is there a list of them?

15% x 1500 = 225 zombie firms in the SP1500

Latkes
Latkes

Japanese zombies have been surviving for 3 decades now. Will the rest of the world replicate this 'success'?

Sechel
Sechel

what's new here? the bis discovered solvency vs liquidity?

Stuki
Stuki

Now, who could possibly figure out that malinvestment leads to under-performance.... Let's make a study, print some graphs, hold hands and be surprised!

I addition, quantizing zombieness along arbitrary "firm" delineations, makes no more sense than engaging in the same silliness wrt trade flows and national borders. Just as cheap/free money encourages and maintains malinvestment/under-performance in a firm as a whole, it also does so in each individual and separate activity firms engage in.

So, bombastically claiming "X% of firms are zombie firms," tells very little. A huge share of the activities undertaken by firms not included in that group, could also be zombie activities, were they to stand alone.