How zombie firms affect healthy firms: The case of Portuguese trade sector

Abstract

Zombie companies can be classified as being nonprofitable, having low productivity and being ten years old or over; these businesses continue to exist due to the support of banks and governments. This paper aims to understand the impact of these types of firms on the investment, employment growth and labour productivity of healthy companies from the wholesale and retail trade and the hospitality sector during the period 2011-2018. The data obtained indicate that the prevalence of zombie companies in Portugal (in the sectors under study) is higher in periods of economic crisis and that most of them are old and large companies, especially in the hotel industry sector. By using panel data models with fixed effects, our investigation concludes that zombie firms negatively affect how healthy companies are run, because they reduce the latter’s investment expenditure and workforce productivity.