We discuss the latest BIS report on “zombie firms” and their impact on productivity, banks and risks in the financial system.
The Bank for International Settlements recently released a new report “The rise of zombie firms: causes and consequences”. They define zombie firms, as firms that are unable to cover debt servicing costs from current profits over an extended period. They used firm-level data on listed firms in 14 advanced economies, to highlight a ratcheting-up in the prevalence of zombies since the late 1980s. They say this increase is linked to reduced financial pressure, which in turn seems to reflect in part the effects of lower interest rates. But such zombies weigh on economic performance because they are less productive and because their presence lowers investment in and employment at more productive firms. And as interest rates rise, many will fail.
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