Based on the report, the low-interest rate environment reduces the pressure on these firms to generate a profit and the propensity for banks to keep lending them money means the availability of a capital infusion via more credit is easier to access.
“Previous studies have focused on the role of weak banks that roll over loans to non-viable firms rather than writing them off,” the report cited. “This keeps zombie companies on life support.”
Furthermore, the effect of this growing number of zombie firms means that economic productivity is lower in the aggregate as these firms are typically marked by low labor productivity and total factor productivity with respect to their more productive peers.
“The economy-wide impact on productivity from the rise in zombie firms can be assessed by exploiting the global nature of the zombie phenomenon,” the report noted.
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