Zombie firms, financial inclusion and women’s bargaining power, and other issues

Abstract

When companies get into such financial difficulties that they cannot meet interest payments out of profits, they’re referred to as ‘zombie firms’. During recessions, many firms will find themselves in this predicament. Any subsequent recovery may be weakened if large numbers of such firms are still clinging on, possibly by meeting interest payments through further borrowing – perhaps combined with slashing their investments in training and R&D. In ‘Not all zombies are created equal. A Marxist-Minskyan taxonomy of firms: United States, 1950-2019’, Nicolás Águila & Juan M. Graña develop a taxonomy of firms that is more sophisticated than just ‘zombie’ or ‘non-zombie’ (according to the above description of being able to meet interest payments out of current profits). They look also at firms’ actual levels of profitability, and at leverage ratios. Their aim is to look beyond the financial characteristic – of being able to meet interest from profits – to consider productive characteristics as well. Their main finding is that the principal problem of U.S. firms is productive, not financial – as there is a high share of firms with increasingly negative profitability even before the payment of interest and despite having relatively low leverage. In other words, even taking the financial issue of needing to repay loans out of the equation, these firms aren’t productive enough to make any profit at all. Hence, they argue: