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Resolving Bad Loans and Zombie Firms: The Case of Greece

Author

Listed:
  • Gatopoulos, Georgios
  • Louka, Alexandros
  • Peppas, Konstantinos
  • Vettas, Nikolaos

Abstract

We analyze the negative externalities of “zombie†firms on investment, employment, and productivity in the context of the Greek crisis, during which the share of zombie firms and non-performing business loans peaked at 20% and 50% respectively. Using a panel dataset by firm size and sector during 2002-2021, we find a strong correlation between non-performing business loans and zombie firms. Empirical analysis reveals that zombie firms impact on the economy in several ways: (1) healthy firms outperform zombies in investment, employment, and productivity; (2) high zombie firm density hinders investment growth among healthy firms; (3) healthy firms must increase productivity to survive in zombie-dense sectors; and (4) zombie firms’ capital concentration limits resource reallocation to more productive uses. Younger and larger firms generally perform better across key metrics, also during crisis conditions. Resolving zombie firms and non-performing loans can enhance resource allocation, both within and across sectors of economic activity, boosting growth in the medium to long term.

Suggested Citation

  • Gatopoulos, Georgios & Louka, Alexandros & Peppas, Konstantinos & Vettas, Nikolaos, 2025. "Resolving Bad Loans and Zombie Firms: The Case of Greece," CEPR Discussion Papers 19868, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19868
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    File URL: https://cepr.org/publications/DP19868
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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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