Publié le 15/01/2025

Zombie companies: the urgent need to hunt them down to strengthen our economies

Find the new article by Stéphane Bellanger, Associate Lecturer at the Sorbonne Business School and Jean-Etienne Palard, Associate Lecturer at IAE Bordeaux!

"Zombie company" is a name that may make you smile, as the two terms seem to have nothing to do with each other. Yet this is a very serious subject, as these companies pose real risks to the economy. This underground phenomenon would benefit from greater awareness, and these companies from better detection by the banking and financial system.

"Zombie companies" are a bit like patients on a drip: they survive thanks to loans or external aid, but are not really economically viable. The OECD defines them as companies more than ten years old which, over the previous three years, have spent more to repay their debts than they have made in gross operating profit (i.e. what is generated by the company's normal activities). Zombie companies share a number of common characteristics: lack of profitability, difficulty in restructuring and innovating, and difficulty in spotting them. They often manage to repay their debts, masking their insolvency.

The OECD definition seems to provide a clear accounting framework. Nevertheless, it predicts nothing about the future of the firms concerned. According to an analysis by the Banque de France, 40% of companies that became zombies in 2010 had become viable again three years later, while only 30% went into receivership. The Carillion case in the UK illustrates the risks associated with the growing complexity of accounting standards, with a construction company using aggressive practices to conceal its financial position before collapsing in 2018. Similarly, the Wirecard case that shook Germany in June 2020 showed how a company can manipulate its financial image to attract investment while actually being insolvent.

Difficult to spot, the real zombies nevertheless represent a major challenge for our economies.