Zombie Firms And Productivity In A Turbulent Economic Environment: The Case Of Ukraine

Since the beginning of the 21st century, global economies have witnessed a succession of economic and financial crises that have impacted both developed and emerging market economies. Such shocks have a detrimental impact on companies, creating a riskier environment for them to operate. Furthermore, this environment also creates conditions for emergence of the so-called “zombie” firms - enterprises whose main problem is the inability to repay their debt obligations to creditors. This term was first defined by Kane (1987) and observed in Japan after the asset bubble burst in the late 1980s when corporate firms were unable to fully service their debts after a steep asset depreciation. The period after the bubble burst is known as “The Lost Decade”, where Japanese commercial banks continued to credit weak firms, thus helping them to avoid default and continue to operate. Such economic distortion, where companies, which in a competitive environment would exit the market, still do business, negatively affect healthy firms with good financial positions. This topic was not widely popular among academics in the mid-2000s, just when most central banks were pursuing low interest rate policies. However, this changed after the end of the US financial crisis, when not only academia but also the private sector joined the discussion, and a decade of low interest rates in the EU further increased the interest in research on the topic.