When companies don't die: Analyzing zombie firms in a low interest rate environment

Angela De Martiis () and Franziska J. Peter

Aussenwirtschaft, 2023, vol. 73, issue 01, 67-86

Abstract: We examine whether low interest rates foster non-viable firms in Europe by analyzing two classes of firms: zombies and distressed. Controlling for the business cycle and recession periods, we find a significantly negative effect of short-term rates on the likelihood of being a zombie, while no effect for distressed firms is detected. A decrease in inflation and a lower state of the business cycle is associated with a rise in both zombies and distressed firms. Examining a non- conventional monetary policy program, we find no evidence of credit misallocation. Therefore, concurring monetary and macroeconomic phenomena likely explain the presence of non-viable firms, although with dissimilarities between zombies and distressed firms.

Keywords: zombie firms; distressed firms; monetary policy; business cycle (search for similar items in EconPapers)
JEL-codes: D22 E32 E43 E52 G33 (search for similar items in EconPapers)
Date: 2023-12
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