THE EFFECTS OF ZOMBIE COMPANIES ON THE ECONOMY: AN APPLICATION ON TÜRKİYE

Abstract

Zombie companies are defined as the ones that are unable to cover interest payments from current profits and that manage to survive with various supports even though they should have exited the market under normal conditions. By holding scarce resources, these companies hinder the reallocation of resources to healthy companies that can use them more efficiently, thus threatening economic growth. This study aims to examine the existence of zombie companies in Türkiye and their effects on the performance of healthy companies operating in the same industry. In this context, the study describes estimates of zombie companies’ existence using company-level data for the period 2006-2021 obtained from the Enterprise Information System (EIS) database, which contains several datasets of all businesses of Türkiye and analyses their economic effects using a panel model with fixed effects. According to the empirical findings, the prevalence of zombie companies has generally risen since the beginning of the analysis period, and an increase in the share of capital sunk in zombies in an industry reduces investment rate and employment growth of healthy companies in that industry and increases the multi-factor productivity gap between zombie and healthy companies. The results show that zombie companies in Türkiye reduce growth opportunities of the healthy companies. Based on the results, it is recommended that policymakers take measures to reduce the prevalence of zombies for economic growth. This paper is the first study to use the EIS database for the analysis of zombie companies. In addition, a new method not used in the literature in advance was developed and used to identify zombie companies.