Productivity and long term growth

Zombie firms and weak productivity




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icon-publication POLICY PAPER

Confronting the zombies: Policies for productivity revival (2017)



Blogpost - Zombie firms and weak productivity: What role for policy?

Design of Insolvency Regimes across Countries (2018)

Breaking the shackles: Zombie firms, weak banks and depressed restructuring in Europe (2017)

Insolvency regimes, technology diffusion and productivity growth: Evidence from firms in OECD countries (2017) 

Insolvency regimes, zombie firms and capital reallocation (2017)

The Walking Dead? Zombie Firms and Productivity Performance in OECD Countries (2017)

Coping with Creative Destruction: Reducing the Costs of Firm Exit (2016)

Insolvency regimes and productivity growth: a framework for analysis (2016)


Insolvency indicators  


  • A number of OECD countries have seen an increasing survival over the last decade of low productivity firms that would typically exit in a competitive market (so-called “zombie firms”), which hamper productivity growth by crowding-out growth opportunities for more productive firms, especially start-ups.
  • New cross-country indicators of the design of insolvency regimes uncover significant differences across OECD countries, in particular in terms of the personal cost to failed entrepreneurs and barriers to corporate restructuring. These cross-country differences in the design of insolvency regimes can in turn explain three interconnected sources of contemporary productivity weakness: the survival of zombie firms, capital misallocation and stalling technological diffusion.
  • Evidence suggest that the zombie firm problem in Europe is also connected to banking sector weakness and bank forbearance. Reviving productivity growth will require policies to diversify the source of corporate financing away from bank lending towards market-based debt and equity financing.
  • Reforms that accelerate corporate restructuring can have powerful effects on productivity, but also carry social costs. Active labour market policies play a key role in returning workers displaced by firm exit to work, thus helping to reconcile the productivity portential of creative destruction with social inclusion.

Share of capital sunk in zombie firms in 2013

Share of capital sunk in zombie firms in 2013

Note: Zombie firms are defined as firms aged ≥10 years and with an interest coverage ratio<1 over three consecutive years. The sample excludes firms that are larger than 100 times the 99th percentile of the size distribution in terms of capital stock or number of employees.

Source: Adalet McGowan, Andrews and Millot (2017), based on ORBIS data.

OECD indicator of insolvency regimes

Increasing in barriers to exit or restructuring

OECD indicator of insolvency regime

Note: Composite indicator based on 12 components.

Source: Calculations based on the OECD questionnaire on insolvency regimes.

 MEDIA : Les sociétés zombies sont légion en Belgique et freinent la productivité

Wallstreet:online - Achtung, die Zombies sind unter uns

Mediapart - Le poids des entreprises zombies dans le recul de la productivité

Der Standard - Zombie-Unternehmen fürchten jeden Zinsschritt

Der Spiegel - Zombie-Firmen bedrohen den Aufschwung

El Confidencial - El ataque de los zombis keynesianos

The Times - 100,000 zombie firms suck life out of economy

The Daily Telegraph - UK-style regulation could boost productivity in other economies, OECD says 

Bloomberg - Zombie firms roam Europe because banks help keep them undead

Channel Web - UK leading fight against uprising of 'zombie firms'

Wall Street Journal - OECD Urges Politicians to Step Up as Central Banks Eye Stimulus Exit Door

Bloomberg View - The Financial Systems Weak Link

The Globe and Mail - Zombie companies haunt the Canadian economy

Huffington Post - Central Bankers’Bubble and its aftermath

The Financial Times - Beware the zombies sucking capital away from others

The Australian - A messy end ahead for developed world's zombie firms

The Economist - How to kill a corporate zombie

Livemint - Zombie companies stop productivity growth

Bloomberg View - How Zombie Companies Stop Productivity Growth

Bloomberg - Zombie Nation: In Japan, Zero Public Companies Went Bust in 2016

The Economist - Industrial policies mean cosseting losers as well as picking winners

The Economist - Attack of the Zombie firms

Financial Times - Voodoo economics



DIW Berlin -  Insolvency Regimes and Cross-Border Investment Decisions


icon-link USEFUL LINKS

Global Forum on Productivity

Inefficient insolvency regimes: a barrier to creative destruction? (blogpost)

The Walking Dead: Zombie Firms Stifle Economic Recovery Prospects (blogpost)

Zombie Firms and Productivity Weakness in OECD Countries (blogpost)

Coping with Creative Destruction: Reducing the Costs of Firm Exit (blogpost)


For any queries please contact Giuseppe Nicoletti ([email protected]). 



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