EU Science Hub

Fear the Walking Dead? Incidence and Effects of Zombie Firms in Europe.

Abstract: 
The European corporate sector currently lacks investment dynamism and one explanation is that so-called zombie firms are spreading and that they crowd out the growth of other, potentially more “lively”, companies. Zombie firms are firms that apparently are unable to repay their debt and yet, they continue operating. The note describes estimates for 2010 and 2013 of the incidence of zombie firms across 19 European countries, using firm-level data for more than one million companies and considering three alternative definitions to ensure robustness of estimates. The note finds that zombie firms are spreading in Europe, judged by estimates for 2013 compared to those for 2010. It also finds that the aggregate figures hide considerable differences across countries. Zombie firm shares as of overall corporate capital are particularly high in Greece and Spain, while low in the Czech Republic and Slovakia. The estimates distinguish between size and age of firms and suggest that larger and older firms are more likely to be zombie firms than relatively smaller and younger firms (although very young firms of less than three years of age are not included in the sample). The report also finds that the growth of zombie firms in terms of employment crowds out the growth of other, non-zombie firms, especially young ones.