Life Below Zero: Zombie Firms and Low Interest Rates

Sammanfattning: This paper employs a zombie classification following (Storz et al., 2017) to examine the phenomenon of zombie firms and low interest rates in Denmark using a comprehensive harmonized firm-level micro dataset from ORBIS covering the period 2002-2019. Specifically, the questions addressed are whether the prevalence of zombie firms increased due to low interest rates and has surviving as a zombie become easier as interest rates have declined? The second point of this research investigates what other factors can help explain the comparatively low rate of zombie firms in Denmark, given the low interest-rate setting– i.e., the importance of financial stability. This study documents that throughout low and even negative interest rates, 2009-2019, the prevalence of zombie shares declined substantially. Moreover, a linear probability model approach is used to show that the risk of surviving as a zombie did not increase dramatically over the period of cheap financing. Overall, the analysis suggests that zombie shares have not increased in the low interest rate setting. Pointing towards the importance of structural factors and the presence of a well-functioning financial system and efficient insolvency regime in Denmark has kept the zombification of the economy in check.