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
No. 1-6
ML1
ML1

How many countries are zombie countries? Many.

World is awash in unrepayable debt and all economic models are based on the debts being repaid...

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.

Sechel
Sechel

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

Latkes
Latkes

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

2banana
2banana

Mish - is there a list of them?

15% x 1500 = 225 zombie firms in the SP1500

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