Financial conditions and zombie companies: International evidence

Joel Bowman

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Financial conditions eased after the global financial crisis and during the COVID-19 pandemic as policymakers across most countries adopted large scale monetary policy easing. This has increased concern amongst some that a prolonged period of accommodative financial conditions has fostered the growth of zombie companies − businesses that are consistently unable to meet their interest expenses from current profits. This paper finds that an easing in self-constructed measures of financial conditions is correlated with an increase in the share of resources sunk into zombie companies using a sample of listed companies across 20 OECD countries and 11 industries over the period 2003 to 2019. However, the size of this relationship is higher for countries with banking systems that are in poorer financial health. As a result, fears that accommodative financial conditions foster more capital being sunk into inefficient zombie companies is likely to be less of a concern for countries with healthy banking systems.

Keywords: Financial Conditions; Zombie Companies; Bank Health (search for similar items in EconPapers)
JEL-codes: E44 E52 G21 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2022-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-isf and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2022-22

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