- A number of OECD countries have seen an increasing survival over the last decade of low productivity firms that would typically exit in a competitive market (so-called “zombie firms”), which hamper productivity growth by crowding-out growth opportunities for more productive firms, especially start-ups.
- New cross-country indicators of the design of insolvency regimes uncover significant differences across OECD countries, in particular in terms of the personal cost to failed entrepreneurs and barriers to corporate restructuring. These cross-country differences in the design of insolvency regimes can in turn explain three interconnected sources of contemporary productivity weakness: the survival of zombie firms, capital misallocation and stalling technological diffusion.
- Evidence suggest that the zombie firm problem in Europe is also connected to banking sector weakness and bank forbearance. Reviving productivity growth will require policies to diversify the source of corporate financing away from bank lending towards market-based debt and equity financing.
- Reforms that accelerate corporate restructuring can have powerful effects on productivity, but also carry social costs. Active labour market policies play a key role in returning workers displaced by firm exit to work, thus helping to reconcile the productivity portential of creative destruction with social inclusion.
Share of capital sunk in zombie firms in 2013
Note: Zombie firms are defined as firms aged ≥10 years and with an interest coverage ratio<1 over three consecutive years. The sample excludes firms that are larger than 100 times the 99th percentile of the size distribution in terms of capital stock or number of employees.
Source: Adalet McGowan, Andrews and Millot (2017), based on ORBIS data.
OECD indicator of insolvency regimes
Increasing in barriers to exit or restructuring
Note: Composite indicator based on 12 components.
Source: Calculations based on the OECD questionnaire on insolvency regimes.
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Mediapart – Le poids des entreprises zombies dans le recul de la productivité
Der Standard – Zombie-Unternehmen fürchten jeden Zinsschritt
Der Spiegel – Zombie-Firmen bedrohen den Aufschwung
El Confidencial – El ataque de los zombis keynesianos
The Times – 100,000 zombie firms suck life out of economy
The Daily Telegraph – UK-style regulation could boost productivity in other economies, OECD says
Bloomberg – Zombie firms roam Europe because banks help keep them undead
Channel Web – UK leading fight against uprising of ‘zombie firms’
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Bloomberg View – The Financial Systems Weak Link
The Globe and Mail – Zombie companies haunt the Canadian economy
Huffington Post – Central Bankers’Bubble and its aftermath
The Financial Times – Beware the zombies sucking capital away from others
The Australian – A messy end ahead for developed world’s zombie firms
The Economist – How to kill a corporate zombie
Livemint – Zombie companies stop productivity growth
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Bloomberg – Zombie Nation: In Japan, Zero Public Companies Went Bust in 2016
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Financial Times – Voodoo economics