Zombie firms

: evolution and main characteristics. A Eurozone study

Abstract

Zombie firms are defined as companies whose financial returns are insufficient to meet their liabilities to creditors, who continue to support them artificially to avoid recognizing losses. This study examines 3187 listed companies in the Eurozone over the period from 2010 to 2022. Two distinct definitions were employed to identify the presence of zombie firms and to analyze the differences in balance sheets between zombie and non-zombie firms. The findings indicate that, at an aggregate level, the proportion of zombie firms decreased following the Great Financial Crisis, only to surge dramatically during the global pandemic. On average, 7% of euro area firms can be classified as zombie firms according to the first definition and 20% according to the second. Additionally, the study reveals that zombie firms exhibit lower levels of investment, reduced asset bases, and higher levels of indebtedness. This research contributes to the existing literature by identifying the prevalence of zombification in the Eurozone and by highlighting the financial discrepancies between zombie and non-zombie firms. These insights may assist in identifying future predictors of zombification and help the creation of strategies that try to mitigate this issue through a deeper understanding of the phenomenon.

Date of Award	15 Oct 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diana Bonfim (Supervisor)