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

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  • Angela De Martiis
  • Franziska J. Peter

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.

Suggested Citation

  • Angela De Martiis & Franziska J. Peter, 2023. "When companies don't die: Analyzing zombie firms in a low interest rate environment," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 73(01), pages 67-86, December.
    • Handle: RePEc:usg:auswrt:2023:73:01:67-86
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    zombie firms; distressed firms; monetary policy; business cycle;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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