The Persistence of Zombie Firms: a Cross-Country Analysis of Prevalence and Determinants

This article explores the concept of zombie firms, tracing its theoretical origins and analyzing its implications for economic productivity and resource allocation. We review global standards for identifying zombie firms and advance a theoretical distinction between subsidized-credit, profitability-based, and hybrid definitions. The paper then focuses on five OECD countries as a case study, investigating the incidence of zombie firms and their anatomy. Empirically, we employ linear probability models and dynamic logit models to study the probability of a firm being classified as a zombie at any point in time. We find that firm history, returns on assets, productivity dynamics, and debt accumulation are the most relevant factors in modeling the current state of zombiness. Lastly, we use a Kaplan-Meier estimator to study the survival rates of viable and non-viable firms, and find that zombies are 8–10 p.p. less likely to survive. Our findings underscore the need for definitional harmonization, and point towards the role of management practices that monitor multiple performance indicators to mitigate zombie congestion and its negative impact on market efficiency.