Determinants of Zombie Firms in the Eurozone

Zombie firms are firms who manage to survive although they keep reporting negative equity. This paper uses a primary zombie definition (firm over 10 years old with an ICR below 1 for three years in a row) and an alternative definition (primary definition and a Tobin’s q ratio and an ROE below-median within the sector, for three years in a row). Zombie firms are a negative phenomenon who result in negative effects on other firms’ productivity and growth. Thus, the research question is: “What are the determinants of zombie firms in the Eurozone?”. Conclusions can be used to identify, predict, and avoid zombie firms. We find that zombie firms are often SME, around 40 years old and mostly present in the Consumer Cyclicals, Industrials, Healthcare and Technology. The probability of a firm being a zombie grows with corruption, debt ratio and intangibles and decreases with competitiveness, current ratio, and ROA. We also find that zombie firms represent around 11% and 5.5% of our observations under the primary and alternative definitions, respectively.