Why covid-19 will make killing zombie firms off harder

Easier access to credit and government support means they will stumble on

Competition between businesses can deliver vast rewards to the winners, as rich lists dotted with spacefaring billionaires attest. The fate of the losers, on the other hand, is a gruesome demise. At least, that used to be the case. A horde of companies has of late emerged that is neither profitable nor condemned to liquidation or takeover. Such corporate “zombies” stalk the business landscape. They are bad news for the economy. And many more firms are in danger of being zombified during the covid-19 downturn.

Zombie businesses are not a new phenomenon. Marginally profitable firms featured prominently in Japan’s “lost decade” in the 1990s (see article). They have since gained ground in the rest of the world. According to the Bank for International Settlements (bis), a club of central banks, nearly one in six listed firms in rich countries could be classified as a zombie in the run-up to the pandemic, up from around one in 20 in the 1980s.

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