Zombie company
In political economy, a zombie company is a company that needs bailouts in order to operate, or an indebted company that is able to repay the interest on its debts but not repay the principal.
Description
Zombie companies are indebted businesses that, although generating cash, after covering running costs, and fixed costs (wages, rates, rent) only have enough funds to service the interest on their loans, but not the debt itself.[1] As such, they are generally dependent on the refinancing of maturing debt for their continued existence and may face solvency risks should interest rates rise or investors withdraw from further financing.
History
The term "zombie company" was applied to Japanese firms supported by Japanese banks during the period known as the "
The term zombie company returned to the economic professional discourse towards the end of the decade (2010 onwards) following the situation of 0 interest rate (i.e., Zero Lower Bound - ZLB) in the western countries.[4]
By 2016, following the economic downturn in China (see also
The term has also seen an increased amount of usage in 2022, with concern over a number of "zombies" possibly going bankrupt or needing to layoff workers due to a spike in interest rates.[9]
See also
- Zombie bank, related term referring to bank businesses with similar financial issues
- Lemon socialism, term referring to state support of weak or failing businesses
- Crony capitalism
- Too big to fail
- Vulture fund
- Corporate debt bubble
References
- ^ "'Zombie' companies eating away at economic growth". BBC. 13 Nov 2012. Archived from the original on 12 November 2020. Retrieved 20 June 2018.
"A zombie company is one which is generating just about enough cash to service its debt, so the bank is not obliged to pull the plug on the loan," (Mark Thomas, PA Consulting)
- ^ a b Denny, Charlotte (20 Nov 2002). "Japan's zombie economy – not buying but browsing". The Guardian. Archived from the original on 26 December 2019. Retrieved 13 December 2016.
- ^ Brooke, James (October 29, 2002). "They're Alive! They're Alive! Not!; Japan Hesitates to Put an End to Its 'Zombie' Businesses". New York Times. Archived from the original on February 16, 2009. Retrieved September 19, 2017.
- ISSN 0266-4658.
- ^ "The march of the zombies". The Economist. 27 Feb 2016. Archived from the original on 1 December 2017. Retrieved 19 September 2017.
- ^ "China to clean-up 'zombie' companies by 2020: Xinhua". Xinhua / Reuters. 17 Jan 2016. Archived from the original on 8 November 2020. Retrieved 3 July 2017.
- ^ Tu, Lianting (8 Mar 2016). "China's Takeover Troubles Putting Xi's 'Zombie' Reforms to Test". Bloomberg. Archived from the original on 2019-12-26. Retrieved 2017-03-12.
"We will address the issue of 'zombie enterprises' proactively yet prudently by using measures such as mergers, reorganizations, debt restructurings and bankruptcy liquidations," (Li Keqiang)
- ^ Petricic, Sasa (3 Mar 2016). "Massive layoffs coming as China confronts its overbuilt 'zombie economy'". CBC News. Archived from the original on 8 November 2020. Retrieved 13 March 2016.
- ^ "A huge number of 'Zombie' companies are drowning in debt. This CEO sees a reckoning as interest rates soar". Fortune. Retrieved 2022-12-15.