The share of zombie firms among Austrian nonfinancial companies

Christian Beer (), Norbert Ernst and Walter Waschiczek ()
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Christian Beer: Oesterreichische Nationalbank, Economic Analysis Division
Walter Waschiczek: Oesterreichische Nationalbank, Economic Analysis Division

Monetary Policy & the Economy, 2021, issue Q2/21, 35-58

Abstract: Aggregate productivity and economic growth may be reduced by “zombie firms” – weakly performing companies that, instead of exiting the market or being restructured, manage to continue operating over an extended period. This article presents first results on the incidence of such zombie firms in Austria, based on three definitions relating to firms’ interest expenses but focusing on different aspects thereof. The main definition measures interest expenses as a ratio of earnings (“interest coverage ratio”). The other two definitions are based on the relationship of interest expenses to liabilities and enhance this information either with firms’ probability of default or their interest coverage ratio. According to all three definitions, the share of zombies fell substantially (even if to different degrees) between 2009 and 2018, across industries and firm sizes. The drop of the zombie share was particularly strong for highly leveraged enterprises. Still, at the end of our observation period, zombie firms continued to have less favorable risk characteristics than non-zombie firms, in particular a distinctly higher probability of default. How this pattern may have changed as a result of the COVID-19 pandemic remains to be seen because our data do not go beyond 2018. Somewhat reassuringly, zombie firms are not more prevalent in those industries that were hit particularly hard by the pandemic. Further findings were obtained with simulations keeping the policy interest rate unchanged over the period under review. Under this assumption, the zombie share established with firms’ interest coverage ratio would have remained roughly constant. The difference between the observed and the simulated zombie shares is particularly pronounced for real estate-related industries, more leveraged firms, and larger companies. Finally, the data show that zombie status is not irreversible. Among those firms for which financial statements information is available for the entire observation period, most zombie firms manage to exit from zombie status.

Keywords: zombie firms; firm behavior (search for similar items in EconPapers)
JEL-codes: D22 E43 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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