Zombie firms in emerging Asia: domestic and cross border implications

Boris Hofmann, Xiaoxi Liu and Ilhyock Shim

No 1375, BIS Working Papers from Bank for International Settlements

Abstract: Using firm-bank linked data for 10 Asian emerging market economies (EMEs) over 2005–2021, we study the domestic and cross-border implications of zombie firms. We document three main findings. First, the number of zombie firms in emerging Asia has increased significantly over the past 15 years, sustained by evergreening practices from weak banks. Second, zombie prevalence domestically depresses firm performance, crowds out healthy firms, and depresses inflation and GDP growth. Third, the macroeconomic effects of zombie firms extend across borders: expo sure to zombie firms in Asian EMEs significantly reduces inflation and growth in advanced economies. These spillover effects operate mainly through global value chains (GVCs) and an intermediate goods import price channel, while cross-border bank linkages do not play any major role.

Keywords: zombie firms; evergreening; global value chains; cross-border spillovers; disinflation; financial stability (search for similar items in EconPapers)
JEL-codes: E31 F14 F36 G21 G33 (search for similar items in EconPapers)
Date: 2026-09
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