The fate of zombie firms: prediction, determinants and exit paths

David Veganzones; Eric Séverin

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Predicting the fate of zombie firms is challenging, especially when distinguishing between those that will persist and those that will exit the market.
Firms with strong financial structures and low debt levels have the potential to recover from zombie status.
Zombie firms survive in the market primarily due to continued financial support.

Abstract

In recent decades, the previously unknown problem of zombie firms has become a prominent research topic, reflecting growing recognition that the presence of zombie firms in a market can compromise the sustainable development of incumbent firms. Therefore, it is relevant to examine both the fate of zombie firms and the determinants of zombification processes. Using a sample of 6762 zombie firms in France, this study investigates the capacity of machine learning and statistical methods to predict a variety of fate states (remain zombie, recovered, bankrupt), explains the main firm-level determinants of the fate of zombie firms and reveals why zombie firms continue to operate when they should have exited the market. The findings fill a marked gap in the literature by clarifying this critical corporate issue from a new perspective and have implications for both policy makers and managers.

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