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