The purpose of this study is to investigate whether the increase in the number of zombie firms in the manufacturing sector was more pronounced in countries with significant credit easing measures during the COVID-19 pandemic and examines how the annual survival rates of firms identified as zombies over a two-year period evolved between 2016 and 2022.
To address this question, the authors classified EU27 countries based on four national-level pandemic policy indicators. The authors then identified zombie firms using four methods and analysed changes in their prevalence with descriptive statistics and a cohort matrix approach. The analysis draws on firm-level manufacturing data from five countries (2015–2022) sourced from the ORBIS database.
The authors found that in most supportive countries, the share of zombie firms rose in 2020 and fell in 2022 after subsidies ended, while in less supportive countries, it stagnated or declined in 2020.
One of the main limitations of the research is that it relies on annual data for unlisted companies, which limits the ability to capture inter-annual fluctuations. Future research could explore additional firm-specific characteristics, such as working capital management and cash burn rates, and assess how these factors vary across countries with differing policy responses.
The findings show that while pandemic-era credit support temporarily increased zombie firm prevalence, the effect was not persistent. This implies that eligibility criteria and the sector’s recovery may have limited long-term zombification, which is an important feedback for policymakers. The authors applied a new method using EBITDA to identify zombie firms providing a practical tool in academic research and in credit risk assessment as an early-warning system. The findings may also be relevant for supervisory authorities responsible for financial stability, in line with concerns raised by recent ECB studies on corporate zombification risks.
This research contributes to the existing body of knowledge by offering a new definition and measuring method of zombie firms and introducing a unique clustering methodology for analysing policy impacts across multiple nations. The implications of the study are significant, suggesting that while credit support measures during the pandemic provided necessary relief for some firms, they also inadvertently fostered economic inefficiencies by sustaining non-viable firms.
