Living with zombie companies: Do we know where the threat lies?

• Published in: European management journal 2018-06, Vol.36 (3), p.408-420
• Main Authors: Urionabarrenetxea, Sara, Garcia-Merino, Jose Domingo, San-Jose, Leire, Retolaza, Jose Luis
• Format: Article
• Language: English
• Subjects: Companies; Contagion; Corporate management; Decision making; Decisions; Equity; Leverage; Linear analysis; Ratings & rankings; Responsibility; Risk; Social responsibility; Studies
• ISSN: 0263-2373; 1873-5681
• DOI: 10.1016/j.emj.2017.05.005

This paper shows the existence of extreme types of zombie firm, i.e. companies with negative equity that continue to do business despite having lost their entire equity. We explain how these firms are measured and how the riskier ones are defined with different determinants. Using a Spanish sample from 2010 to 2014 an index called the EZIndex is developed that includes four dimensions of the extreme zombie problem: extension, contagion, recovery signs and immediacy. The paper contributes to zombie theory on the one hand by developing a method for ranking zombie firms based on risks and changes over time, and on the other hand by using a log-linear model to detect the riskiest corporate profiles out of all these risky firms. It demonstrates significant implications that need to be considered by the competent authorities not only in terms of their impact as a whole but also in regard to the particular profile of extreme zombie firms: they are less regulated, large and located in regions with large business fabrics.