JC Penney has been described as a classic example of a zombiecompany
Over the past year, economists have grown increasingly alarmed about the rise of so-called zombie companies. Although not yet insolvent, these businesses are left to shamble along aimlessly, not earning enough to reinvest in the business but still turning over a sufficient amount to pay off debts. Now, as COVID restrictions lift and economies reopen, these undead firms could prove to be a curse for hopes of a strong economicrecovery.
Unlike their horror movie counterparts, these businesses can be identified by a lack of profitable activity and high levels of indebtedness, with the majority of their cashflow going towards servicing these debts. Sandy Hager, senior lecturer in international political economy at City University London, describes US department store JCPenney and collapsed British construction company Carillion as two classicexamples.
Julie Palmer, partner at corporate restructuring specialists Begbies Traynor, explains: A zombie business is one which is hanging on for grim life but isnt really prospering and can do little more than justsurvive.
Government support schemes, low interest rates and access to cheap credit has helped to keep many of these companies in a state of suspended animation. It has also caused the number of these zombie businesses to soar.
Towards the end of last year, analysis from Bloomberg revealed that almost a quarter of companies listed on the Russell 3000 index the 3,000 largest publicly traded companies in the US had not earned enough to pay off the interest owed on their debts and could therefore be classified aszombies.
In the UK, new research from Begbies Traynor shows similarly distressing signs for the UK. Its Red Flag Alert report found 723,000 businesses in significant financial distress, a 15 percent increase from the previous quarter and a 42 percent increase year onyear.
Palmer adds: The combination of the long-term build up of these zombies and the turning off of support measures, which is going to have to happen, will finally mean that we start seeing a number of these businesses begin to fail, and in quite significant numbers.
While the justification for supporting businesses through the pandemic has been clear, as economies reopen people are beginning to question whether these unproductive businesses should be left to exit themarket.
Research from the Bank of International Settlements suggests that a prevalence of zombie firms could hamper post-pandemic economic recovery. Speaking on the BIS podcast, its senior economist Ryan Banerjee says: Weve seen fewer bankruptcies, which means there have been fewer new entrants in the market, as there has been no space for them to occupy. That means there is potentially less chance for one or two of those new fast-growing firms, which have an outsized impact on productivity growth, to enter themarket.
This could lead to a much slower pace of economic recovery and caused Deutsche Bank chief executive Christian Sewing to warn of the serious impact zombie companies could have on the productivity of theeconomy.
For Palmer, the harsh reality is that many of these zombie firms need to fail in order to encourage a faster economicrecovery.
If better businesses are able to come into the spaces they [zombie businesses] occupied and do things more imaginatively and flexibly, they will not only survive but adapt and prosper going forward, she says. Although it means a bit of pain in the short term, its the price to be paid for a more efficient economy and a sharper recovery curve goingforward.
We shouldnt be overly excited about the prospect of COVID killing off these so-called zombie companies
But not everyone is welcoming the downfall of these zombie corporations. Hager, says: Youll find a lot of pro-market people who are celebrating the fact that so-called zombie companies might go bankrupt during the crisis. Theyre seen as being incapable of competing and if they fail, we might be able to create a more efficient businesssector.
However, he cautions: We shouldnt be overly excited about the prospect of COVID killing off these zombie companies because theyre the ones that are a key source of dynamism in theeconomy.
According to his research, smaller businesses, which are more likely to be classified as zombie companies because of their high debt servicing costs, are also the ones that spend the largest percentage of their revenue on capital expenditure.
Hager adds: Capital expenditures matter because they provide the basis for innovation and job creation. Without these smaller companies, were going to see a greater concentration of power within the larger corporations, more monopolies and less capital expenditure.
Ultimately, Hager fears this could lead to slower job creation, wage stagnation and unemployment, as well as lower levels of innovation in productmarkets.
But not all zombie companies are doomed to fail. Pent up consumer demand, which has built up during lockdowns, could help some of these businesses shed their zombie status. Hager says: Its difficult because these businesses are dedicating so much of their cashflow to debt servicing, making it hard to compete. But I wouldnt say that their demise is inevitable.
The rapid reopening up of the economy and increase in consumer demand could be enough to help a lot of these companies to bounce back, especially in the hospitality and travelsectors.
See the rest here:
What will the end of the pandemic mean for zombie companies? - Raconteur
- Why Did the CDC Develop a Plan for a Zombie Apocalypse ... - June 1st, 2021
- The Best Locations in Dallas To Hide In A Zombie Apocalypse - Dallas Observer - June 1st, 2021
- The Could You Survive This Zombie Apocalypse? Matrix - The Ringer - June 1st, 2021
- Army of the Dead VFX Boss on Crafting the Perfect Zombie Tiger - ComicBook.com - June 1st, 2021
- The Zombie-Mall Weirdness of Going to the Movies Again - The New York Times - June 1st, 2021
- 710 freeway expansion is a zombie project from another era - Los Angeles Times - June 1st, 2021
- How VFX Artists Made the Zombie Horse in 'Army of the Dead' - menshealth.com - June 1st, 2021
- Biden Won't Give Up on Zombie Infrastructure Deal - The Daily Beast - June 1st, 2021
- The Outrageous Bride magazine that is tapping into new trend for zombie, Goth and even Viking weddings - Business Live - June 1st, 2021
- 'Zombie universities' face drastic action as births fall - University World News - June 1st, 2021
- Zombie heist movie Army of the Dead descends to the depths of mediocrity - CultureMap Austin - June 1st, 2021
- Were Living Through the DLC-ification of Movies and TV - Observer - June 1st, 2021
- Texans Must Now Face 'Zombie Trees' as a Result of the Historic Winter Storm - ourcommunitynow.com - June 1st, 2021
- The Zombie Comedy Killing It On Netflix Right Now Looper - Looper - May 8th, 2021
- Army of the Dead Scene with Full Frontal Zombie Nudity Didnt Make Final Cut: Its Too Much - IndieWire - May 8th, 2021
- Army Of The Dead removed scene with full-frontal zombie nudity from final cut - NME - May 8th, 2021
- Play Days Gone without the annoying zombie hordes with Open Country - PCGamesN - May 8th, 2021
- Ranking All 8 ROB ZOMBIE Movies Worst to Best - Dread Central - May 8th, 2021
- Serial pleasures: The TV series that got us through lockdown - The Irish Times - May 8th, 2021
- George A. Romeros final zombie film is being finished by his widow - NME - May 8th, 2021
- New 'Army of the Dead' Clip Teases New Type of Zombies - HYPEBEAST - May 8th, 2021
- Mystery as zombie nuclear fires REIGNITE at Chernobyl blast site 35 years on sparking fears of another di... - The Sun - May 8th, 2021
- Desi Nostradamus is wrong. The zombies are already here - The Times of India Blog - May 8th, 2021
- The best tower defense games on PC - PCGamesN - May 8th, 2021
- This place in Lancashire is deemed one of the least likely places to survive a zombie apocalypse - Lancashire Telegraph - May 8th, 2021
- Army of the Dead: How Zack Snyder Is Revolutionizing Zombie Movies - Den of Geek - April 23rd, 2021
- Beware the 'Zoom Zombie'? - Land Line Opinion % - Land Line Media - April 23rd, 2021
- My Breast Implants Turned Me Into A Rapidly Aging Zombie - Scary Mommy - April 23rd, 2021
- Slipknot, Rob Zombie and Mudvayne to headline Inkcarceration Music & Tattoo Festival 2021 - Louder - April 23rd, 2021
- Zack Snyders Army of the Dead VFX Team Used Carole Baskins Tiger to Create the Zombie Tiger - IndieWire - April 23rd, 2021
- Forget Everything and Run review scenic zombie adventure lacks bite - The Guardian - April 23rd, 2021
- Army of the Dead: What Excites Us About Zack Snyders Zombie Epic - ComingSoon.net - April 23rd, 2021
- CGI Zombie Tiger In Army Of The Dead Was Modeled After Carole Baskin's Own Tiger - GameSpot - April 23rd, 2021
- What a Zombie Basketball Player From 2026 Has to Do With NIL and NFTs - SportTechie - April 23rd, 2021
- Jeffrey Dean Morgan Shows His Son As A Zombie On 'The Walking Dead' - UPROXX - April 23rd, 2021
- Halo 3 goes horror with a Call Of Duty-inspired zombies mod - PC Gamer - April 23rd, 2021
- Preview: Zombie Hornets try to survive against maybe KD and the Brooklyn Nets - At The Hive - April 23rd, 2021
- An invasion of corporate zombies may still be on the horizon - Sydney Morning Herald - April 23rd, 2021
- Two Teens with Down Syndrome Made Their Dream Zombie Movie. The Documentary SAM AND MATTIE MAKE A ZOMBIE MOVIE is the Story of How They Did It - Now... - April 23rd, 2021
- History will not be kind to Tokyo's 'zombie Olympics' - Nikkei Asia - April 5th, 2021
- Researchers discover "Zombie Genes" in the brain that come to life after death - CMU The Tartan Online - April 5th, 2021
- Geoengineering the climate: The zombie idea that just won't die - Resilience - April 5th, 2021
- Hilarie Burton Worried She'd Make a 'Bad Zombie' On The Walking Dead - TooFab - April 5th, 2021
- The Guitar Zombie Apocalypse Is Real - Premier Guitar - April 5th, 2021
- Call of Duty: Warzone's Zombies Move to a New Location - ComicBook.com - April 5th, 2021
- Corey Taylors Zombie Versus Ninja movie will commence shooting this year - Louder - April 5th, 2021
- Is Zombie Army 4 multiplayer? Heres all we know about the Rebellion Developments release - Republic TV - April 5th, 2021
- What are 'zombie mines'? What do they have to do with Malcolm Turnbull? - ABC News - April 5th, 2021
- The Best Zombie Movie According To Reddit Isn't What You'd Think - Looper - April 5th, 2021
- Zombie (The Cranberries song) - Wikipedia - March 9th, 2021
- How to Survive a Zombie Apocalypse, According to the CDC - Inside Edition - March 9th, 2021
- The CDC wants you to prepare for a zombie apocalypse. (Yes, you read that right.) - USA TODAY - March 9th, 2021
- Call of Duty's Zombie Easter Eggs Were Too Hard, So Cold War Season 2 Is Simplifying Things - Kotaku - March 9th, 2021
- Resident Evil 3 Did Army of the Dead's Zombie Vegas 14 Years Ago - Screen Rant - March 9th, 2021
- The perfect Call of Duty zombies mode is here, and it's not Outbreak - PC Gamer - March 9th, 2021
- CDC Offers Guide to Survive Zombie Apocalypse and Other Natural Disasters - Complex - March 9th, 2021
- Zombie Soil: The Harmful Result of Industrial Farming | Earth 911 - Earth911.com - March 9th, 2021
- Call of Duty Warzone Crossover With Zombies Teased on Twitter - Screen Rant - March 9th, 2021
- 'Zombie' cicadas could be on your doorstep this summer - Times-West Virginian - March 9th, 2021
- How to Find Flawless Aetherium Crystals in COD: Zombies Outbreak - Screen Rant - March 9th, 2021
- Resurrected The Walking Dead star Lauren Cohan tells Conan her best zombie kill nicknames - The A.V. Club - March 9th, 2021
- Warzone yellow access cards - how to survive the new shipwreck zombies event - Gamesradar - March 9th, 2021
- WTOPs Beer of the Week: 3 Floyds Zombie Dust Pale Ale - WTOP - March 9th, 2021
- Indias zombie home fund set to deliver thousands of apartments - The Real Deal - February 20th, 2021
- Zombie infection threat as country unlocks 50,000-year-old viruses - Yahoo News Australia - February 20th, 2021
- Stubbs the Zombie rises from his grave this March for PC via Steam - PC Invasion - February 20th, 2021
- Zombie Hit Train To Busan Is Getting A US Remake - GameSpot - February 20th, 2021
- Rob Zombie says the meat industrys future is unsustainable - NME.com - February 20th, 2021
- Stubbs The Zombie In Rebel Without A Pulse - Yahoo Entertainment - February 20th, 2021
- Batista Wanted To Play A Zombie On The Walking Dead, Rejected For Being "Too Big" - Fightful - February 20th, 2021
- Dave Bautista told he was too big to play zombie on The Walking Dead - NME - February 17th, 2021
- Dave Bautista Offered To Play A Zombie For Free On The Walking Dead - Screen Rant - February 17th, 2021
- Is plurilateralism making the WTO an institutional zombie? - East Asia Forum - February 17th, 2021
- REVIEW: Zom 100: Bucket List of the Dead, Vol. 1 is a Comedic Zombie Apocalypse - CBR - Comic Book Resources - February 17th, 2021
- Don't Eat Pete is a zombie survival game that's available now for Android in Early Access - Pocket Gamer - February 17th, 2021
- Call of Duty Warzone seems to be teasing Zombies - Gamesradar - February 17th, 2021
- James Gunn Weighs In On Whether Zombies Or Vampires Are More Dangerous - Looper - February 17th, 2021
- The Walking Dead back on the march - Stuff.co.nz - February 17th, 2021
- The Walking Dead Turned Dave Bautista Down for a Zombie Role - Superherohype.com - February 16th, 2021
- Army of the Dead Image Teases Zombie Heist Movie - /FILM - February 16th, 2021
Reviewed and Recommended by Erik Baquero