Zombie Firm Research
Welcome to our Zombie Firm Research Page. Zombie firms are a perverse outgrowth of the falling interest rate environment created by the Federal Reserve. We talk with top zombie experts from around the world to break down what defines a zombie firm, what effect they have on the healthy economy and what zombie hordes indicate in the process of our current cycle of capital destruction. Monetary Metals is one of the few companies investigating the rise of zombies as the undead horde continues to grow. You’ll find all our videos and articles on zombie firms, zombie lending and the ongoing zombification of our economy here.
What is a zombie firm?
The term zombie corporation or zombie firm is used to describe firms that are consistently unable to generate enough profits to meet their debt-servicing expenses. The rise of zombies is often associated with weaknesses stemming from the financial sector and misallocation of capital resources.
You can read our discussion with top zombie researcher Max Göbel on the latest state of the research.
What do zombie firms mean for the market economy?
There is increasing concern that recent policy responses designed to keep businesses afloat during the pandemic, which included public support of firms’ liquidity, such as wage bills and tax relief schemes, moratoriums on credit instalment payments, and credit guarantees, combined with ill-designed screening schemes might have allowed resources to flow into non-viable zombie firms. Zombie-lending is regarded as a threat to long-term economic growth, and it is also found to interfere with the efficacy of monetary policy in the short-run.
Read our latest research article on zombie firms and what it means for capital destruction.
Will zombie firms take over our economy?
Despite the finding that zombification is not a widespread phenomenon, the U.S. economy is not exempt from zombie-lending practices. This may potentially have negative consequences for viable firms. Identifying such spillover effects is the subject of research by Maximilian Göbel & Nuno Tavares. Their general findings are more in alignment with the European case: zombie-lending imposes a drag on productivity, investment, and employment-growth of healthy firms. Yet, it is predominantly small- and medium-sized companies that fall victim to these lending activities. Moreover, they find evidence for increasing inflows of zombie-credit from the banking sector to interfere with an industry’s entry and exit dynamics, thus hampering the cleansing mechanism of the economy, which is supposed to foster economic growth.
Compared to the European case, however, the United States’ economy appears to be better shielded against a zombification and the resulting spillovers.
Videos about Zombie Firms
All Articles about Zombie Firms and Their Impacts
A zombie can only exist by the grace of too-low interest rates, and a very permissive credit environment. In other words, they (we) can thank central banks for these resource-sucking, wealth-destroying, boat anchors on the economy.
In the face of low interest rates, investors were desperate for yield and thus willing to lower their baseline level of risk aversion in order to find attractive opportunities in the lower tranches of the investment grade segment or even beyond.
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