Beyond the Twilight Zone: The Restructuring and Resurrection of Zombie Firms

Responses to financial crises can have the unfortunate effect of creating “zombie” firms, companies whose operating profits are insufficient to cover their debt service. These companies would probably have gone bankrupt without the forbearance of banks or regulators or other types of government or lender support, but their rise reduces economic productivity, limits healthy firms’ growth, and deters the creation of new firms (Caballero et al, 2008; McGowan, Andrews, and Millot, 2017).

The question of what factors enable certain zombie firms to survive while others fail, however, has not yet been addressed in literature. I contend that not all zombies … Read more