Fear the walking dead

Zombie firms, spillovers and exit barriers

Ana Fontoura Gouveia, Christian Osterhold

Research output: Working paper

Abstract

Productivity growth is slowing down among OECD countries, coupled with increased misallocation of resources. A recent strand of literature focuses on the role of non-viable firms (“zombie firms”) to explain these developments. Using a rich firm-level dataset for one of the OECD countries with the largest drop in barriers to firm exit and restructure, we assess the role of zombies on firm dynamics, both in the extensive and intensive margins. We confirm the results on the high prevalence of zombie firms, signi cantly less productive than their healthy counterparts and thus dragging aggregate productivity down. Moreover, while we find evidence of positive selection within zombies, with the most productive restructuring and the least productive exiting, we also show that the zombies' productivity threshold for exit is much lower than that of non-zombies, allowing them to stay in the market, distorting competition and sinking resources. Zombie prevalence curbs the growth of viable firms, in particular the most productive, harming the intra-sectoral resource reallocation. We show that a reduction in exit and restructuring barriers promotes a more e ective exit channel and fosters the restructuring of the most productive, highlight the role of public policy in addressing zombies' prevalence, fostering a more e cient resource allocation and enabling productivity growth.
Original languageEnglish
PublisherBanco de Portugal
Number of pages35
ISBN (Electronic)978-989-678-578-9
Publication statusPublished - Apr 2018

Fingerprint

Spillover
Exit
Resources
OECD countries
Productivity growth
Aggregate productivity
Extensive margin
Reallocation
Market competition
Productivity
Public policy
Misallocation
Resource allocation
Firm exit
Intensive margin
Firm dynamics

Keywords

  • Zombie Firms
  • Resource Allocation
  • Labor Productivity
  • Firm Dynamics
  • Insolvency Frameworks

Cite this

@techreport{aa11c70d06674124b0d7bae962306cd2,
title = "Fear the walking dead: Zombie firms, spillovers and exit barriers",
abstract = "Productivity growth is slowing down among OECD countries, coupled with increased misallocation of resources. A recent strand of literature focuses on the role of non-viable firms (“zombie firms”) to explain these developments. Using a rich firm-level dataset for one of the OECD countries with the largest drop in barriers to firm exit and restructure, we assess the role of zombies on firm dynamics, both in the extensive and intensive margins. We confirm the results on the high prevalence of zombie firms, signi cantly less productive than their healthy counterparts and thus dragging aggregate productivity down. Moreover, while we find evidence of positive selection within zombies, with the most productive restructuring and the least productive exiting, we also show that the zombies' productivity threshold for exit is much lower than that of non-zombies, allowing them to stay in the market, distorting competition and sinking resources. Zombie prevalence curbs the growth of viable firms, in particular the most productive, harming the intra-sectoral resource reallocation. We show that a reduction in exit and restructuring barriers promotes a more e ective exit channel and fosters the restructuring of the most productive, highlight the role of public policy in addressing zombies' prevalence, fostering a more e cient resource allocation and enabling productivity growth.",
keywords = "Zombie Firms, Resource Allocation, Labor Productivity, Firm Dynamics, Insolvency Frameworks",
author = "Gouveia, {Ana Fontoura} and Christian Osterhold",
year = "2018",
month = "4",
language = "English",
publisher = "Banco de Portugal",
type = "WorkingPaper",
institution = "Banco de Portugal",

}

Fear the walking dead : Zombie firms, spillovers and exit barriers. / Gouveia, Ana Fontoura; Osterhold, Christian.

Banco de Portugal, 2018.

Research output: Working paper

TY - UNPB

T1 - Fear the walking dead

T2 - Zombie firms, spillovers and exit barriers

AU - Gouveia, Ana Fontoura

AU - Osterhold, Christian

PY - 2018/4

Y1 - 2018/4

N2 - Productivity growth is slowing down among OECD countries, coupled with increased misallocation of resources. A recent strand of literature focuses on the role of non-viable firms (“zombie firms”) to explain these developments. Using a rich firm-level dataset for one of the OECD countries with the largest drop in barriers to firm exit and restructure, we assess the role of zombies on firm dynamics, both in the extensive and intensive margins. We confirm the results on the high prevalence of zombie firms, signi cantly less productive than their healthy counterparts and thus dragging aggregate productivity down. Moreover, while we find evidence of positive selection within zombies, with the most productive restructuring and the least productive exiting, we also show that the zombies' productivity threshold for exit is much lower than that of non-zombies, allowing them to stay in the market, distorting competition and sinking resources. Zombie prevalence curbs the growth of viable firms, in particular the most productive, harming the intra-sectoral resource reallocation. We show that a reduction in exit and restructuring barriers promotes a more e ective exit channel and fosters the restructuring of the most productive, highlight the role of public policy in addressing zombies' prevalence, fostering a more e cient resource allocation and enabling productivity growth.

AB - Productivity growth is slowing down among OECD countries, coupled with increased misallocation of resources. A recent strand of literature focuses on the role of non-viable firms (“zombie firms”) to explain these developments. Using a rich firm-level dataset for one of the OECD countries with the largest drop in barriers to firm exit and restructure, we assess the role of zombies on firm dynamics, both in the extensive and intensive margins. We confirm the results on the high prevalence of zombie firms, signi cantly less productive than their healthy counterparts and thus dragging aggregate productivity down. Moreover, while we find evidence of positive selection within zombies, with the most productive restructuring and the least productive exiting, we also show that the zombies' productivity threshold for exit is much lower than that of non-zombies, allowing them to stay in the market, distorting competition and sinking resources. Zombie prevalence curbs the growth of viable firms, in particular the most productive, harming the intra-sectoral resource reallocation. We show that a reduction in exit and restructuring barriers promotes a more e ective exit channel and fosters the restructuring of the most productive, highlight the role of public policy in addressing zombies' prevalence, fostering a more e cient resource allocation and enabling productivity growth.

KW - Zombie Firms

KW - Resource Allocation

KW - Labor Productivity

KW - Firm Dynamics

KW - Insolvency Frameworks

UR - https://www.bportugal.pt/sites/default/files/anexos/papers/wp201811.pdf

M3 - Working paper

BT - Fear the walking dead

PB - Banco de Portugal

ER -