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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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The Walking Dead?
Zombie Firms and Productivity Performance in OECD Countries
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- Muge Adalet McGowan1, Dan Andrews1, Valentine Millot1
- Author Affiliations
- 1: OECD, France
- 25 Jan 2017
- Bibliographic information
This paper explores the extent to which “zombie” firms – defined as old firms that have persistent problems meeting their interest payments – are stifling labour productivity performance. The results show that the prevalence of and resources sunk in zombie firms have risen since the mid-2000s and that the increasing survival of these low productivity firms at the margins of exit congests markets and constrains the growth of more productive firms. Controlling for cyclical effects, cross-country analysis shows that within-industries over the period 2003-2013, a higher share of industry capital sunk in zombie firms is associated with lower investment and employment growth of the typical non-zombie firm and less productivity-enhancing capital reallocation. Besides limiting the expansion possibilities of healthy incumbent firms, market congestion generated by zombie firms can also create barriers to entry and constrain the post-entry growth of young firms. Finally, we link the rise of zombie firms to the decline in OECD potential output growth through two key channels: business investment and multi-factor productivity growth
- zombie lending, firm exit, investment, productivity, misallocation
- JEL Classification:
- D24: Microeconomics / Production and Organizations / Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity
- E22: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Investment ; Capital ; Intangible Capital ; Capacity
- G32: Financial Economics / Corporate Finance and Governance / Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill
- O16: Economic Development, Innovation, Technological Change, and Growth / Economic Development / Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance
- O40: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / General
- O47: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence